When the U.S. military attacks Houthi rebels in Yemen or positions of the Islamic Revolutionary Guard Corps in Iran, it very often does so from a safe distance. Far off the coast, Tomahawk cruise missiles are launched from submarines or or surface vessels. They fly low, adapt to the terrain, and are therefore difficult for enemy air defenses to combat.
For this highly intelligent weapon to hit its targets with its inherent precision, many chips and electrical circuits must first be installed in it. They contain 500 ounces, or the equivalent of 15.5 kilograms, of silver. Upon impact, this silver dissolves into many tiny particles due to the heat, which are then scattered to the winds by the force of the detonation.
Recycling is no longer an option at this point. The same applies to Russian missiles that hit targets in Ukraine night after night, and other military equipment. They also contain large quantities of silver, which cannot be recycled after combat use and are therefore no longer available for other applications.
Demand for Silver Rises Due to Growing Defense Spending
The Tomahawk cruise missile serves here as an example for many modern weapon systems. The electronics contained within them would not be possible without the use of silver. Silver is therefore an indispensable raw material, especially for weapon manufacturers. Any expansion of military budgets that goes beyond compensating for inflation thus also creates additional demand for silver on the world market.
Currently, military expenditures are being significantly increased worldwide. The Stockholm International Peace Research Institute (SIPRI) already recorded a significant increase in global defense spending to 2.4 trillion dollars for 2023. This represented an increase of 6.8 percent compared to 2022. The jump from 2023 to 2024 was even more significant, as global military expenditures rose by another 9.4 percent to well over 2.7 trillion US dollars.
As the trend of increased military spending remains unbroken, higher overall expenditures and thus higher silver consumption can also be expected for 2025 and 2026. How much silver is actually consumed by weapon manufacturers is not known. The exact components of weapons, as well as the total quantities of silver required, are subject to secrecy and are not disclosed to the public.
In Case of Doubt, the Military should Take Precedence
It is known, however, that new weapon systems, especially hypersonic missiles flying at multiple times the speed of sound, require considerable amounts of silver. It can therefore be assumed that several million ounces of silver annually, i.e., several thousand tons of silver, are needed by the defense industry worldwide.
Not only the exact quantity of silver needed remains unclear. There is also uncertainty about how this demand is met. Well-informed circles are already speaking of an undersupply of silver to the defense industry. If this assessment hits the nail on the head, silver has long since become a truly strategic raw material for all states.
It is therefore also reasonable to expect that in the event of persistent shortages, civilian silver buyers will have to defer to the interests of military silver buyers. The world is familiar with this phenomenon from fuel supply. If gasoline and diesel are scarce, private buyers at the gas station are more likely to go without than a tank or military truck not running.
Silver Substitution is not an Alternative for the Defense Industry
Whenever a commodity or raw material becomes scarce, the question of possible alternatives immediately arises. For weapon manufacturers, however, foregoing silver is not a viable option, as possible silver substitutes come with significant quality compromises. This is not an acceptable solution, especially in the field of high-tech weapons.
The defense industry’s demand for silver is therefore not only constantly increasing but also non-negotiable. It significantly exacerbates the existing silver deficit in the market. In a well-supplied market, this would not be too big a problem. However, the silver market has already been in a deficit for five years because industrial demand cannot be met by silver production from mines and recycled silver.
Silver is already a scarce commodity today, and many signs indicate that this scarcity will intensify further in the coming months. A further increase in the already significantly risen silver price is therefore to be expected. However, it will not eliminate the problem of scarcity.
How to Profit from Future Silver Scarcity with and without Leverage
Only a significant expansion of silver production by mines or a strong reduction in industrial demand can achieve this. Since neither is to be expected in the short term, it is plausible that the silver price will rise without eliminating the underlying scarcity. For far-sighted investors, this is an almost perfect outlook for their investments.
Those who invest conservatively primarily buy physical silver and simply wait. Meanwhile, investors who want to leverage the upcoming massive silver scarcity can also bet on silver mines and silver project developers.
The share prices of well-known silver producers such as First Majestic Silver, Silvercorp Metals (WKN A0EAS0) or Coeur Mining have already risen sharply this year. But young, aspiring project developers like Silver Tiger Metals (WKN A2P4YL), Silver47 Exploration (WKN A408EQ) and Cerro de Pasco Resources (WKN A2N7XK), as well as explorers like Aztec Minerals (WKN A2DRF0) or Terra Balcanica (WKN A40DA5), are also already benefiting from awakening investor interest and have recorded considerable share price gains in recent months. The royalty company Silver Crown Royalties (WKN A40GTS) has also already benefited.
Is the party over? By no means. While those who invest today no longer buy at the very low prices of April and May, the chance for high capital gains is still present, as valuations in the silver sector are often still extremely low and thus highly interesting from an investor’s perspective.
