The Silver Puzzle

• On May 11, silver jumped 6.3% to $85.85 while gold added just 0.5%, the dollar held, and crude sat still. Silver then ran above $89 on its own beta, detouring from the macro environments, raising speculations on viewing silver as a by and large industrial metal. 

• The note mainly examines 2 market narratives around silver: a six-year supply deficit and an AI demand wave.

Key Takeaways

• The demand story for silver has turned. The World Silver Survey 2026 from Metals Focus puts 2025 industrial demand at 657 Moz (Million Ounces), down 3%, the first post-pandemic decline, with another 3% drop forecast for 2026. Photovoltaics, the single biggest use case in solar power, fell to 186.6 Moz and is forecast to drop a further 19% next year as panel makers thrift silver out. Mine production rose 3% to 846.6 Moz. Recycling hit a 13-year high. Supply is actually going up while demand is down, from a fundamental demand-supply analysis.

• The deficit narrative is misleading the market to be concerned about a flow problem for a commodity that trades based on stocks. Yes, 2025 ran a 40 Moz gap, and that makes a six straight years deficit, 762 Moz cumulative since 2021. However, the Silver Institute counts 1.4 billion ounces sitting in bullion, more than a year of total consumption. While all above-ground silver is nearing 19 billion ounces, roughly 18 years of consumption. A 40 Moz deficit is 0.2% of that. Too little to break the market.

• For the AI narrative in the market, the math does not carry the load. Running our own bottom-up analysis: roughly 3 million AI servers in 2026 at 20 grams each is about 1.9 Moz, or 0.17% of global demand. Stretch the count to data-center power gear, grid expansion, and hyperscaler solar PPAs (Power Purchase Agreement), and the all-in 2030 figure reaches 6 to 16 Moz, around 1% of silver demand. 

• Furthermore, silver buys a 5% conductivity edge over copper at 290 times the price. Engineers would substitute if a slight failure isn’t catastrophic and Silver is not as irreplaceable as some people may think. While silver is present in AI infrastructures, the amount needed per equipment is miniscule.
• Silver isn’t becoming an industrial metal. It has been about 58% industrial for years, and that share is falling while the industrial narrative gets louder. What changed is the market’s willingness to pay up for that component, financial demand dressed as industrial conviction. Coin and bar buyers added 218 Moz in 2025, up 14%. Indian retail investment hit a record 79 Moz. ETP holdings closed the year at an all-time 1,318 Moz. Financial demand continues to hold significant shares and is growing.

• The structural case that holds up silver prices sits on the supply side, and it works slowly. Only 26% of mine output now comes from primary silver mines, a record low; the rest is a by-product of copper, lead, zinc, and gold, so production follows base-metal economics rather than the silver price. Even at 70% margins in 2025, with all-in sustaining costs at $12.21 an ounce, output barely grew. Average mine lead time has stretched from about 10 years to 18. Bernstein counts 44 projects that could each add more than 1% of supply, and only two are under construction. The tightness adds structural pressure to silver’s price, but it plays out over a decade, with limited near term impacts.

• The catalysts are worth watching. Chinese solar makers moving to copper and silver-free cells at scale, Longi from Q2 2026 and Aiko already running 6.5 GW, would push PV demand below the 151 Moz already pencilled in. ETP flows: 2026 inflows are forecast at just 30 Moz against 273 Moz last year. If that bid fades, the financial driver of the 2025 rally fades with it.

Bottom line

• Silver is not being overly undervalued as some market narratives may suggest, the relatively small supply deficit does not act as a structural driver for the price against the rich stock of silver.

• The AI-pull demand contributes marginally to silver demand upon bottom-up analysis and the substitutability is not as high as market sometimes been celebrating.

• Inside the volatile market, however, where any financial flows can lead to great variations in prices, and under the uncertain geopolitical environment, price swings are expected and silver price may still break.