Silver has just crossed the $120 mark, climbing roughly 450% in only two years. In that short window, more than $6 trillion has been added to its market value, turning silver into the strongest-performing asset globally. This move didn’t come out of nowhere, and it isn’t the result of a single catalyst. What we are witnessing is the collision of long-term physical shortages with structural weaknesses in the paper market.
At its core, this rally is being driven by real metal, not speculation.
A Deficit That Has Been Building for Years
For a long time, silver’s fundamentals were quietly deteriorating beneath the surface. Over the past five years, global consumption has consistently exceeded production. The cumulative shortfall has reached roughly 678 million ounces, which is close to an entire year of worldwide mine output simply missing from the system.
This means silver entered the current rally already in a state of scarcity. The price did not rise first and then create a shortage. The shortage existed well before the market began reacting.
China’s Shift Changed the Global Flow of Silver
China plays a far larger role in the silver market than many investors realize. Beyond mining, it controls a significant share of global refined silver output. Recently, Chinese authorities tightened export controls through licensing requirements and restrictions, sharply reducing the amount of refined silver allowed to leave the country.
The impact was immediate. Physical silver inside China began trading at a steep premium, with Shanghai prices moving far above those in international markets. That gap exists because metal inside the country is becoming increasingly difficult to source. As exports slow, the rest of the world is forced to compete for a shrinking pool of available supply, driving premiums higher and pushing manufacturers to pay up to avoid disruptions.
Industrial Demand Is Expanding at the Worst Possible Time
Silver is not just a monetary metal. It is deeply embedded in modern industry, and demand is accelerating on multiple fronts.
Solar energy is one of the largest drivers. Each solar panel relies on silver for internal electrical conduction, and there is no easy substitute without sacrificing performance. As global solar capacity expands, silver demand from this sector alone is projected to more than double by the end of the decade, rising from roughly 200 million ounces per year toward the 450 million ounce range.
At the same time, data centers, artificial intelligence infrastructure, electrification projects, and advanced electronics are scaling rapidly. Silver’s unmatched electrical conductivity makes it essential in high-performance systems, where reliability matters more than cost. As these industries grow, silver consumption rises alongside them, even as supply struggles to keep up.
A Paper Market Built on Extreme Leverage
Most silver trading does not involve physical metal at all. It takes place through paper contracts. Estimates suggest the ratio of paper claims to real silver may exceed 350 to one. This structure only functions smoothly as long as participants are willing to settle in cash and not demand delivery.
That balance has started to break. As more buyers seek physical metal, shorts find it increasingly difficult to source silver for delivery. They are forced to buy back contracts, which drives prices higher and triggers additional short covering. The result is a self-reinforcing cycle where rising prices are fueled by the inability of the paper market to satisfy physical demand.
Clear Signals of Physical Stress
Two key indicators have been flashing warning signs.
Lease rates, which represent the cost of borrowing physical silver, are typically near zero. Recently, they spiked toward nearly 39% on an annualized basis. That kind of move signals one thing: physical silver has become extremely hard to obtain.
Backwardation has also appeared in parts of the market. When spot prices trade above futures prices, it reflects urgency. Buyers are willing to pay more to receive metal immediately rather than wait. Similar conditions were last observed during periods of severe stress, including around 1980, underscoring how tight the market has become.
Refining Constraints Tightened the Squeeze
Even when raw silver is available, it must be refined into usable form. In late 2025, nearly 10% of global refining capacity went offline. This created a bottleneck that restricted the flow of finished silver products just as demand was accelerating, compounding the supply problem and amplifying price pressure.
ETFs Locked Up Massive Amounts of Metal
Investment demand has also played a direct role. Silver ETFs hold physical bars, removing them from circulation entirely. In early 2025 alone, roughly 95 million ounces flowed into these funds. That silver is no longer available to industry, manufacturers, or futures delivery, further tightening the market.
Silver Became a Strategic Resource
In August 2025, the United States officially classified silver as a critical mineral. This was more than a symbolic move. It marked a shift in how governments view silver, elevating it from a standard commodity to a strategic material essential for national and technological security.
Why Silver Moves Faster Than Gold
Gold markets are deep and highly liquid. Silver markets are smaller and far thinner. When pressure builds, silver responds with far greater volatility. The recent surge is not the result of a single narrative or a speculative frenzy. It is the cumulative outcome of persistent supply deficits, rising industrial consumption, export restrictions, structural paper leverage, physical delivery stress, refining disruptions, ETF absorption, and strategic reclassification.
The key change is simple but profound. Silver is no longer being priced primarily by paper contracts. It is being priced by physical availability. Once a market reaches that point, moves that once seemed impossible can suddenly become inevitable.
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