Silver's Growth Momentum and Undervaluation Thesis

Silver prices surged 21% in 2024, breaching $34 per ounce by mid-2025. This rally coincided with persistent structural deficits, where supply consistently lagged behind demand. Cumulative shortfalls since 2021 now total 678 Moz, with a 148.9 Moz gap in 2024 alone. Forecasts suggest the imbalance will ease to 117.6 Moz in 2025, though risks linger.

The deficit stems largely from record industrial demand of 680.5 Moz in 2024, driven by renewable energy infrastructure, electric vehicles, and electronics tied to AI expansion. These sectors now account for over half of silver's consumption, raising questions about whether green and tech-driven demand can sustain multi-year price growth.

While 2025 demand looks stable, tariffs and trade policy shifts threaten supply chains. Jewelry and silverware markets, already sensitive to price swings, could face sharper contractions if geopolitical tensions escalate. For investors, the key test is whether industrial penetration rates and cost-performance improvements in renewables/AI can override these frictions.

Industrial Demand: The Growth Engine

Silver's industrial consumption hit a record 680.5 million ounces in 2024, making up 60% of total demand. This surge was powered by two explosive trends: the green economy and AI-driven electronics. Grid infrastructure, electric vehicles, and solar panels consumed vast quantities, while digital devices fueled another growth engine.

Yet the market ran short, with a 148.9 Moz structural deficit in 2024 alone, building to 678 Moz since 2021.

Solar PV emerged as the standout sub-sector, claiming 17% of all silver use by 2024 and growing at 12.6% annually. Its expansion hasn't kept pace with demand though-supply has lagged 7% since 2016, creating persistent tightness. This imbalance helped push silver into a bull market, with prices reaching $38/oz by mid-2025. The widening gold-silver ratio (91x) and depleted inventories suggest further upside, though investment flows (95M oz in H1 2025) could intensify volatility.

For 2025, industrial demand looks stable but faces headwinds. The structural deficit is projected to narrow moderately to 117.6 Moz, but US trade policies and tariffs threaten supply chain continuity, potentially cooling growth across all industrial segments. Geopolitical tensions and inflation remain catalysts for the silver squeeze, yet their uncertainty means today's strong fundamentals could quickly turn fragile if global tensions escalate or manufacturing slows.

Silver's Investment Surge and Market Imbalance

Investor appetite for physical silver has surged dramatically in 2025, fueling a significant market imbalance. Silver Exchange-Traded Products (ETPs) saw investors pour in a massive 187 million ounces year-to-date through November 2025. This influx occurred even as traditional industrial, jewelry, and coin demand fell by 4% annually, highlighting how dominant financial motives have become in driving the metal's price action.

This investor frenzy is reflected in the gold-silver ratio, though recent data shows divergence. While the ratio hit 78 in October 2024, it has recently widened to 91 times the price of gold-significantly above its long-term historical average of 67 times. This widening suggests silver is increasingly undervalued relative to gold, potentially attracting more investors seeking a cheaper alternative for portfolio diversification. However, this ratio remains highly sensitive to shifts in risk sentiment and central bank policy.

The core imbalance stems from persistent supply shortages. Silver faces its fifth consecutive structural deficit totaling 95 million ounces in 2024-2025, driven by record-high prices and soaring investment demand. Crucially, global inventories have been significantly depleted, particularly in physical forms like ETF holdings and warehouse stocks. This thin supply cushion, combined with the soaring investment flows, creates significant downside risk for market participants holding short positions-a classic setup for a potential "silver squeeze." Such a squeeze could see rapid price spikes if buying pressure suddenly overwhelms the exhausted supply base. Yet, silver's strong link to industrial demand, especially for solar panels and electric vehicles which still account for nearly 60% of use, means its price remains vulnerable to economic slowdowns or shifts away from green technology investments. The metal's future hinges on whether the investment surge can sustainably overcome these industrial dependencies and the persistent deficit.

Risks and Guardrails

While silver's structural deficit and industrial demand provide a strong foundation, several headwinds could disrupt this momentum. US tariffs and broader trade disputes pose immediate threats, as highlighted in recent industry reports. These policies could raise costs for silver-intensive goods like jewelry, silverware, and electronics components, directly suppressing demand in key consumer markets. The volatility triggered by tariff announcements earlier this year already demonstrated how quickly sentiment can shift.

A wider gold-silver ratio also warrants caution. Currently hovering near 91:1, significantly above its historical average of 67:1, some analysts interpret this as a potential overvaluation signal that could prompt selling according to recent analysis. While historically a high ratio can precede a "silver squeeze" fueled by investment demand, prolonged deviation might also indicate silver is underperforming relative to gold, potentially drawing capital away from the precious metal sector.

Finally, persistent supply constraints remain a double-edged sword. Although a 148.9 million ounce deficit in 2024 underlined tightness, id_1 notes a projected slight narrowing to 117.6 million ounces for 2025. Any unexpected slowdown in industrial consumption – particularly in solar PV, EVs, or electronics linked to AI growth – could exacerbate inventory pressures and stall price momentum. Simultaneously, a rapid supply response, perhaps from accelerated mine output or large-scale recycling, could quickly correct the deficit without triggering a sustained price surge. Geopolitical instability remains a wildcard, capable of either boosting safe-haven demand or disrupting the complex global supply chains essential for silver's industrial applications.