Silver Institute: Persistent Deficit and Sharp Volatility Drive Prices to Record Levels and Reshape Global Demand

The global silver market is undergoing a notable structural shift between 2025 and 2026, as macroeconomic pressures, geopolitical tensions, and evolving industrial and investment dynamics reshape price behavior and supply-demand fundamentals.

 According to the World Silver Survey 2026, silver experienced an exceptional year in 2025, with the average price rising by 42% to exceed $40 per ounce, after starting the year below $29. Prices peaked at $84 in December, supported by declining global inventories, strong investment demand, and tightening liquidity conditions across major markets.

This performance unfolded against a backdrop in which gold initially outperformed during the first half of the year, driven by geopolitical risks and global economic uncertainty. However, silver narrowed the gap in the second half, benefiting from robust physical demand and rising industrial metal prices, particularly copper. This shift encouraged investors to rotate into silver after an extended period of elevated gold-to-silver ratios.

On the supply side, global mine production increased by 3% to reach 846.6 million ounces, led by growth in Latin America, particularly in Chile and Peru. In contrast, North American output declined, mainly due to reduced production in Mexico amid operational disruptions and regulatory challenges. Meanwhile, recycling supply rose by 2% to its highest level in 13 years, driven by elevated prices and increased scrap flows from jewelry and silverware, although refinery bottlenecks limited the pace of growth.

In contrast, global silver demand declined by 2% to 1.13 billion ounces, marking its lowest level since 2021. Industrial demand fell by 3%, primarily due to weaker photovoltaic (solar) demand as manufacturers accelerated silver thrifting and substitution strategies. Nevertheless, demand from sectors such as artificial intelligence infrastructure, data centers, and electric vehicles provided partial support.

Consumer demand was also impacted by high prices, with jewelry fabrication declining by 8% and silverware demand falling sharply by 21%, particularly in price-sensitive markets such as India. On the other hand, physical investment demand in coins and bars rose by 14%, supported by stronger activity across multiple regions, despite continued weakness in the United States.

As a result of this imbalance, the silver market recorded a deficit of 40.3 million ounces in 2025, marking the fifth consecutive annual shortfall. This persistent deficit has contributed to a drawdown in global inventories and heightened price volatility, culminating in a severe liquidity squeeze in October, driven by inventory shifts, strong physical demand, and significant inflows into exchange-traded products.

Investment activity surged throughout 2025, with silver-backed exchange-traded products (ETPs) recording one of their strongest years on record. This was fueled by heightened uncertainty surrounding U.S. economic policy, rising government debt levels, and expectations of future interest rate cuts, all of which reinforced the appeal of precious metals as safe-haven and diversification assets. Momentum-driven trading and fear of missing out (FOMO) further accelerated the rally, while also increasing market fragility and volatility.

In early 2026, silver extended its rally, reaching an all-time high above $121 per ounce in January before experiencing a sharp correction. The pullback was driven by profit-taking, tighter monetary policy expectations, and the economic implications of the Iran conflict, which strengthened the U.S. dollar and pressured non-yielding assets like silver.

Looking ahead, the market is expected to remain in deficit for a sixth consecutive year in 2026, with a projected shortfall of 46.3 million ounces. This comes despite a slight decline in mine production and a further increase in recycling supply. Demand is expected to remain under pressure in industrial and jewelry segments due to high prices, while investment demand is likely to stay relatively resilient.

Overall, the silver market reflects a fragile equilibrium, supported by strong structural and investment-driven factors but challenged by industrial demand headwinds and macroeconomic uncertainty. This dual nature continues to position silver as one of the most complex and sensitive commodities, influenced simultaneously by economic cycles, technological transformation, and global financial conditions.