Silver's Supply Crunch Sparks Bull Case: Report

After the first seven months of the year, silver has surged 26%, positioning itself as one of the top-performing commodities. Yet, recent analysis shows that this run is just starting, as shrinking supply points to the growing possibility of a price squeeze.

Sprott Management Analysts have elaborated on this thesis in the mid-year outlook, citing tightening supply and rising industrial demand.

"The available inventory of freely traded silver has been heavily diminished, making the metal more sensitive to incremental buying," said Maria Smirnova, senior portfolio manager at Sprott. "Small increases in demand could now lead to disproportionately large increases in price."

According to Sprott, the global silver market is heading for its seventh consecutive year of deficit. Based on data from the Silver Institute and Metals Focus, the cumulative shortfall since 2021 has reached nearly 800 million ounces. Meanwhile, mine production continues to decline, down 7% since 2016.

Industrial use, which accounts for 59% of total silver demand, remains a key driver. Solar photovoltaic panels alone represented 17% of silver demand last year, up from just 5.6% in 2015.

Demand is also growing from electric vehicles, electronics, and power grids, especially in China and India. Despite efficiency gains in solar manufacturing, the pace of installations continues to rise rapidly.

Price Watch: iShares Silver Trust (NYSE:SLV) is up 26.07% year-to-date.

Silver also remains a monetary asset, especially appealing to investors seeking a hedge in times of geopolitical instability and inflationary pressure.

Compared to gold, silver is more accessible to the retail market, and buyers benefit from its dual case. India, for example, saw record levels of physical silver and ETF purchases in the first half of 2025.

Investment demand has become increasingly important in tightening the market. Global silver-backed exchange-traded products saw net inflows of 95 million ounces in first-half of 2025. Since 2019, over 1.1 billion ounces of silver have been removed from mobile inventory, either absorbed by ETPs or accumulated by private investors.

The silver-to-gold ratio (the amount of silver needed to buy one ounce of gold) has also held surprisingly high in recent months. Historically, this ratio averaged around 67, but today it stands over 91, although silver is only mined at a 7:1 ratio to gold.

The disproportionate pricing has led some investors to see silver as offering greater upside potential.

Smirnova noted that silver is typically more volatile and sensitive to investor sentiment than gold. In past precious metals bull markets, silver's rally has been double the relative rally of gold, on average.

"With supply deficits deepening and demand intensifying across both industrial and investment channels, silver's bull market appears well supported," she said.

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