The silver market is forecast to record a fifth straight market deficit in 2025, with demand once again outstripping supply, and the majority of the existing above ground silver stocks are not available to satisfy demand -- at any price.
According to analysis by the Silver Institute, silver price movement doesn’t correlate with changes in above ground stocks.
"Once only a storehouse of wealth, for instance in bars, silverware, jewelry, and coins, items that stay mostly as they were produced – and largely unavailable to the market – silver has become an industrial metal that usually gets consumed or otherwise taken out of circulation except for recycling, whose effect can vary."
This is bad news given the rapidly increasing demand for silver, especially for industrial use.
Movements in bullion stocks do have an impact on the silver price and vice versa, but according to the Silver Institute, the vast majority of above ground silver stocks are "immobile." There are only small net additions or subtractions from these stocks on an annual basis.
Some other notes from the Silver Institute report:
- Increases in bullion stocks are often positively correlated with the price, as investment demand grows when silver prices increase, which still stimulates higher prices.
- Multi-year drawdowns in bullion stocks have tended to occur in bear markets for silver and have exacerbated these. However, these drawdowns have typically set silver up for more substantial rallies as investors have rebuilt their bullion holdings.
- Above-ground stocks of fabricated products are less price-sensitive than those of bullion. Only specific subsets of silver fabrication demand show a sensitivity to the price, such as jewelry and silverware.
The bottom line is that growing silver demand will primarily need to be filled by mine output. But silver production has plateaued in recent years, and the trajectory moving forward is uncertain.
Silver mine output peaked in 2016 at 900 million ounces. Up until last year, silver production had dropped by an average of 1.4 percent each year. In 2023, mines produced 814 million ounces of silver.
Based on preliminary data, silver mine output increased by about 2 percent in 2024, breaking a trend of declining silver production, however, this isn’t nearly enough to meet demand.
According to Metals Focus, a combination of reserve depletion, mine closures, and a 20 percent drop in ore grades drove sagging mine output.
This is why we’ve seen market deficits for several consecutive years.
Silver supply is expected to grow by 3 percent this year, but it won’t be nearly enough to feed growing demand. This will lead to a 149 million-ounce market deficit. While the gap between supply and demand will shrink by about 19 percent from last year’s level, it will remain “sizeable historically.”
This is yet another reason to think silver is set up to shine.
Originally Published on Money Metals.