Silver's 2025 Bull Run and the Case for Physical Ownership in 2026: Navigating Structural Shortages and Paper Market Risks

The silver market in 2025 has been defined by a relentless bull run, driven by a confluence of structural supply shortages and surging industrial demand. With prices reaching record highs of $54.48 per ounce in October 2025, the metal has become a focal point for investors and analysts alike. However, beneath the surface of this price surge lies a fragile market structure, where paper-driven mechanisms risk decoupling from physical reality. As we approach 2026, the case for physical ownership of silver has never been stronger, particularly in light of the growing disconnect between exchange-traded instruments and tangible supply.

Structural Supply Shortages: A Perfect Storm

The global silver market entered 2025 with a deficit of 117.7 million ounces, marking the fifth consecutive year of structural undersupply. This deficit is the result of a perfect storm: declining mine production, insufficient recycling to offset primary supply gaps, and a surge in industrial demand. According to the World Silver Survey 2025, global silver mine output is projected to remain stagnant or decline slightly, reaching approximately 835 million ounces. Aging orebodies, rising production costs, and regulatory challenges in key producing nations such as Mexico and Peru have constrained output.

Recycling, while growing to 195 million ounces in 2025, has failed to bridge the gap. Industrial scrap from ethylene oxide catalysts and end-of-life electronics has provided some relief, but these flows are inherently cyclical and insufficient to counteract the long-term decline in primary production. Meanwhile, industrial demand has surged, particularly in the renewable energy sector. Solar panel manufacturing alone requires over 230 million ounces annually, while electric vehicles and 5G infrastructure have added to the pressure. The cumulative deficit over five years now stands at 800 million ounces, a figure that underscores the fundamental imbalance in the market.

The Paper Market Disconnect: A Looming Crisis

While the physical market tightens, the paper-driven silver ecosystem has created a dangerous illusion of abundance. COMEX registered silver inventories have plummeted by over 70% since their 2020 peak, and ETF holdings have similarly contracted to meet delivery demands. This liquidity squeeze has been exacerbated by high lease rates and the manipulation of paper markets. For instance, JP Morgan's operations have been criticized for suppressing prices and diverting physical silver into private vaults, further reducing accessible supply.

The iShares Silver Trust (SLV), the largest silver ETF, has played a pivotal role in this dynamic. As industrial demand surged in 2025, ETF inflows drained accessible silver reserves, creating a self-reinforcing cycle of scarcity. By mid-2026, borrowing costs for silver had spiked to 200% annualized, and COMEX stocks were at historic lows. These conditions signal a market where paper instruments increasingly outpace physical availability, raising the risk of a systemic breakdown in delivery mechanisms.

The Case for Physical Ownership in 2026

The risks of a paper-driven market are not hypothetical. A structural deficit of 1.12 billion ounces in 2025-despite a 4% decline in total demand-highlights the fragility of current market structures. With inventories at multi-decade lows and lease rates at stratospheric levels, the ability of ETFs and futures markets to deliver physical silver is in question. For investors, this creates a critical inflection point: holding paper silver exposes them to the risk of forced liquidation or delivery failure, particularly as geopolitical tensions and US trade policies continue to disrupt supply chains.

Physical ownership, by contrast, offers a hedge against these systemic risks. Coins, bars, and bullion provide direct access to the metal, bypassing the intermediaries and leverage mechanisms that have distorted the paper market. As the Silver Institute notes, industrial demand from the green energy transition and AI infrastructure will remain a long-term bullish driver. However, this demand cannot be fulfilled without a robust physical supply chain. Investors who secure physical silver now are not only positioning themselves to benefit from price appreciation but also safeguarding against the potential collapse of paper-based instruments.

Conclusion

The 2025 bull run in silver is a symptom of deeper structural imbalances. As mine production stagnates and industrial demand accelerates, the market is being forced to confront a reality where paper markets no longer reflect physical scarcity. For 2026, the prudent strategy is clear: physical ownership is the only reliable way to participate in the silver story. With inventories at historic lows and systemic risks mounting, the time to act is now.