Continued high demand with currently low inventories. This short formula can currently be used to describe the situation on the silver market. The increased demand from industry due to AI applications, solar and battery technology, sensors, displays and screens is not new. 2025 was the fifth consecutive year in which silver production from mines was insufficient to meet market demand.
The total deficit that has been taken from the warehouses in the last five years now amounts to around 800 million ounces of silver. This is just below the current global annual production, which amounts to 820 to 835 million ounces. As silver production is absolutely inelastic and cannot be increased in the short term, the missing ounces will have to be taken from existing warehouses again this year.
At this point, however, it becomes problematic, as the inventory reduction of recent years has now dramatically reduced the remaining stocks. While the warehouses of the American COMEX exchange still contained 346 million ounces of silver in 2020, this stock has since fallen by a dramatic 75 percent to just 82 million ounces.
The subtle difference between “Eligible” and “Registered”
The Comex warehouses can be divided into two categories. “Eligible” refers to those stocks that are held privately in the warehouses. They are clearly assigned to individual owners and only these owners, such as banks or ETFs, can dispose of this silver. For this reason, only the silver that is managed in the “Registered” category can be used if the buyer of a futures contract chooses the option of physical delivery.
While the inventory in both categories has fallen by 75 percent in the last five years, the open interest, i.e. the number of contracts outstanding in total, has increased. This is putting the Comex in an increasingly precarious situation, as the number of contracts registered for physical delivery has increased significantly in recent months.
To make matters worse, banks and exchange-traded funds, which are backed by physical silver, transferred 95 million ounces from the “Registered” to the “Eligible” category in the first half of 2025 alone. This silver is therefore blocked and no longer available for future deliveries. The situation is similarly tense at the London LMBA. Here, too, inventories have fallen to very low levels in the meantime.
The pressure on silver buyers from industry is increasing
The situation is not only tense for the metal exchanges. Industrial buyers are also coming under increasing pressure. In the past, they had their own inventories that covered their needs for around 120 days on average. Today, companies would be happy if their material buffers were still this comfortable size and would secure their own production for another quarter, as most companies only have inventories that cover their needs for 30 to 45 days.
This creates a pressure that can very easily be transferred to the metal exchanges, because without this silver, production will quickly come to a standstill in many companies. Against this background, it is obvious that more and more contract buyers from industry will be pushing for delivery of the silver they have bought in the coming months and it is also to be expected that they will do everything in their power to somehow get hold of the silver they need if the western metal exchanges cannot deliver this silver.
This is reminiscent of the year 2000, when Ford feared that it would no longer be able to buy enough palladium for its catalytic converters. In a kind of panic attack, the American car manufacturer bought up the palladium market at the time and drove the palladium price from 250 US dollars to a peak of 1,000 US dollars per fine ounce with its purchases.
Real deficit or artificial shortage?
The price then quickly came back down because Russia, which had previously artificially tightened the market, was happy to supply palladium again at the increased prices. This detail is important because, unlike the silver market today, the palladium market was never actually in a structural deficit at any point in 2000.
Today, however, the silver market is not only characterised by an artificial shortage, but by a real structural deficit that has existed for five years. This is a subtle and very important difference. Because in the event of a real shortage, even the highest prices do not lead to more ore being mined in the mines from which the required ounces could be extracted.
As the massive crash last Friday has not left the mining stocks unscathed, risk-conscious investors who want to take advantage of the opportunities in this sector are currently offered more favourable entry opportunities again. Major silver producers such as First Majestic Silver, mine developers such as Silver Tiger Metals or Cerro de Pasco Resources are therefore well worth a look again.
