Silver deficit debate: why the price stays stuck

Silver is running out: six years of deficits and a price that won't take off

The silver market has been in annual deficit for six consecutive years. Industrial demand, driven by solar energy and chips for artificial intelligence, exceeds mining output and recycling every year. According to one forum participant, the projected shortfall for 2024 is 265 million ounces, an amount equivalent to completely draining the available stock for trade on the COMEX, New York's main metals futures market. Yet the price still fails to react with the force many investors have been waiting a decade for. The ounce trades far below its 2011 highs, and the debate over whether this time is finally the one has reignited with force.

Industrial consumption eating up production

Silver is no longer just a store of value. It is a critical raw material. According to one forum user, the photovoltaic industry consumed more than 200 million ounces in 2023, up from 60 million in 2015. Artificial intelligence demands processors that require silver, and the solar energy needed to power data centers adds further pressure. Some project that before 2033 the solar sector will claim between 800 and 1,000 million ounces a year. The math is simple: if the trend holds, industry will absorb all the metal mined.

The deficit is not a hypothesis. COMEX data show that only 62 million ounces are available for trade, while the rest of the nearly 300 million remains in storage. In other words, the projected annual deficit consumes the equivalent of the entire tradable stock on the New York market. In Shanghai, warehouse inventories fell to 755 tonnes in June 2024, well below the historical average of 1,336 tonnes since 2012.

Why doesn't the price rise if silver is scarce?

The question obsesses stackers. The answer has several layers. The first is technological substitution: the photovoltaic industry is already working on silver-free panels that are cheaper, though less efficient. If that technology is adopted at scale, consumption would plummet, and with it the price. The second is recycling. Silver from solar panels, X-rays and electronic devices returns to the market, though with a delay: panels last twenty years or more, so the return is slow.

The third layer is the most uncomfortable. Private stacking, which reached 284 million ounces in 2020, fell to 243 million in 2023, and 212 million are expected in 2024. If retail buying had continued, the annual deficit would exceed 500 million ounces. It hasn't. The silver price remains trapped in a range that despair those who bought at 15 or 17 euros an ounce and are still waiting for the definitive breakout.

Gold as a mirror and relative scarcity

Comparing silver and gold is a recurring exercise. Buying all of silver's annual production, mined and recycled, requires about 30 billion dollars. Doing the same with gold takes far more capital. Hence the thesis that silver is scarcer than gold in relative terms: while 90% of gold is hoarded, industrial silver is consumed and disappears. The argument has a practical flaw: gold is money, silver is a commodity. And the market treats each metal according to its function.

The substitution question also weighs in. Is there any cheaper mineral that could replace silver? Copper is the most frequently cited alternative, but it is less efficient. Graphene sounds like the future, not the present. Silver has more than 1,000 industrial uses, and although solar panels are just one, their weight in demand is growing. Removing photovoltaics from the equation would still leave a deficit of 33 million ounces. Metal is still lacking.

The physical silver business and those who already sold

In Spain, buying silver coins with cash has become complicated. Ounces are scarce in the retail market and bars are starting to be the option for those who want physical metal. 100-peseta coins and old silver duros are fetching ever higher prices. Some claim the Spanish market offers lower prices than other countries, but the reality is that physical silver has become an awkward asset to move in large quantities.

Meanwhile, those who bought years ago watch the chart with resignation. Silver topped 1,000 euros a kilo in 2011 and stood at 400 euros in 2020. The subsequent crash left scars. Some sold, others hold on. The promise that silver will explode "in two or three years" has been repeated since before the housing crisis. The years pass, forecasts are half fulfilled, and the price still hasn't made its definitive leap.

How long until industry takes all the silver and nothing is left for the investor? The answer depends on whom you ask. The data point to a decade. The price, for now, looks the other way.