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According to economic experts, we are currently experiencing a shortage in silver. Experts predict that the demand for silver will outpace the supply in 2024 by 176 million ounces. This deficit accounts for a decrease to the deficit from 2023 (194 million ounces), but still represents large-scale shortages in the need for silver.
However, the question remains about the market dynamics at play that are causing the shortage. There have been many silver shortages in the past, and we are not immune to the one in which we find ourselves, either.
So, let’s talk about the effects of a silver shortage. A continuing inability to find silver could have dramatic effects on our daily lives, so we need to understand what’s happening.
A silver shortage is when the demand for silver outpaces the available supply. The resulting deficit means that silver prices are almost certain to rise.
The primary driver for the overextended demand for silver is its industrial uses. Silver is an integral component in electronics, photography, and medicine.
However, the newest big player on that field is the solar energy industry. Photovoltaic panels – the kind that are used to capture sunlight and convert it into electricity – are dependent on silver’s unparalleled conductivity to run at their highest efficiency.
The spread of solar as a desirable power generation method means that there is an increased need for silver. Some estimate that solar energy demand will be 20% of the overall silver demand by 2030.
As mentioned, we are in a shortage period currently. Experts predict that the demand for silver will outpace the supply in 2024 by 176 million ounces. This deficit accounts for a decrease to the deficit from 2023 (194 million ounces), but still represents large-scale shortages in the need for silver.
However, the question remains about the market dynamics at play that are causing the shortage. We touched briefly on those, but let’s examine them in greater detail on both the demand and supply sides of the equation.
Silver shortages are not new by any means. In the 14th century, Europe’s silver mines began to run dry, which caused an event known as The Great Bullion Famine. The famine led to the creation of many workarounds and accounting tricks as both governments and citizens struggled to find a medium of exchange.
With such a shortage, it is difficult to make a meaningful statement about the effect on silver prices. So, we’re going to look at more recent shortages in US history.
Before we begin, it is important to understand that silver was heavily controlled by the government between 1890 and the 1960s. The price of silver was largely set by the federal government, and, thanks to FDR, the supply of silver was largely hoarded by the government apparatus.
However, the global aftereffects of World War II changed the silver market forever. The need to rebuild, coupled with societies that were increasingly electronic in their infrastructure, placed new levels of demand on the silver market.
Now, the Treasury did try to keep prices artificially low at first by selling off its hordes of silver. However, as the demand pushed the price higher than the statutory maximum amount the Treasury could sell gold – 91 cents an ounce – the Treasury found itself scrambling to pull silver out of US coinage and to stop redeeming silver certificates for silver bullion.
Because the US had hoarded so much silver, it was able to keep silver prices reasonable for the 1960s. By the 1970s, though, the US had sold almost 92% of its silver stocks, and demand had continued to grow. In addition, worldwide production of silver did not increase significantly during this period, causing a legitimate silver shortage that saw demand outpace supply by several hundred million ounces.
As a result, the price of silver – $1.55 in 1971 – more than tripled to $4.71 an ounce just three years later. Aside from a brief period in the early 1990s, silver has never been worth less than $4 an ounce since then.
Although these prices were high, silver investors increasingly convinced themselves that they did not reflect the true prices associated with the ongoing silver shortage. They began hoarding silver themselves, rather than selling at the prevailing prices. The price spiked astronomically, from $7.69 in February 1979 to $38.30 in February 1980.
The spike didn’t last, though, as increased recovery of old silver coins and changes to production processes reduced the supply deficits. As a result, the price of silver and supply of silver remained in relative harmony throughout the 1980s and 1990s.
The end of the 1990s played host to a short recession due to the dot-com bubble bursting, and the malaise from that period endured all the way into the Great Recession in 2008. As a result, silver began to experience a sustained period of increasing demand due to investors scrambling to park their net worths in physical assets.
The demand, which was buoyed by the debut of large commodity ETFs (exchange-traded funds) and their desire for investment-grade silver coins like Silver Eagles, pushed silver prices towards their 1980 prices. Though there were brief periods of selloffs that dropped the price low, the general price trend rose dramatically over the course of the Great Recession.
By 2011, the price of silver reached a new apex, trading at just below $40 an ounce on two different occasions. However, as times improved, investors and investor funds sold off their silver and caused the price to decline into the teens by 2014.
The first factor driving demand is the increasing call from makers of solar panels, electronics, and automotive manufacturers. Solar panels – especially the newer, more efficient versions – simply cannot function without silver due to their connectivity, which is higher than any other metal. Solar panels are big business these days, with the US government only spending $7 billion to bring solar to the citizenry.
The need from electronics producers is great, too, but one interesting source of increased demand comes from the automotive industry. The concerted push away from gasoline engines to battery-powered ones has created an enhanced need for silver electronic components, which aid in charging.
Currently, demand from investors remains high. Soaring inflation rates over the past four years or so have driven silver prices back above $30 an ounce, as ETFs and individual buyers look for ways to capture the value of their net worth in tangible assets, rather than fiat currency.
Silver may be in demand due to its affordability compared to gold. Though both remain strong investment vehicles, the power to scoop up silver when the gold-to-silver price ratio is over 80:1 is far more accessible, especially to small-time investors.
The trajectory of the economy and inflation in the coming months and years will continue to affect demand for silver in the years to come. Increasing inflation rates, which devalue the dollar (or any other currency), push more investors to look toward precious metals like silver. In addition, a weakening economy often inspires buyers to “batten down the hatches,” so to speak, by trading more and more silver for dollars and hoarding their supplies of the white metal.
Many countries endeavor to discover and mine as much silver from their lands as possible. However, only a few of them manage to do it at any scale.
The top producer of silver in the world is undeniably Mexico. The United States’ southern neighbor produced 6,400 metric tons of silver in 2023, nearly double that of the second biggest silver producer, China (3,400 metric tons). The production numbers may even have been a bit soft, as workers at one of the top mines in the country went on strike for four months in 2023.
After China, the three countries that round out the top five are Peru, Chile, and Poland. It bears mentioning, though, that only the top three had production numbers exceeding 3000 metric tons in 2023 – Chile and Poland are well behind.
At present, increases in production from several countries are expected to generate stronger numbers for silver production. New initiatives at major mines in the US, China, and Russia are likely to produce increased gains.
However, silver mining itself is at a bit of a crossroads. The environmental impact of mining silver is increasingly under scrutiny, and the industry is working to discover more sustainable options for their operations.
Right now, silver mining consumes tremendous amounts of water, and the overall involvement of heavy machinery is quite disruptive to the surrounding ecosystems. So, they are going to have to figure something out, or countries may begin clamping down and, in turn, lowering production figures.
One hidden factor in the supply of silver, though, is the impact of recycling. Although industries need silver for many of their products, the silver isn’t usually destroyed by their processes. Instead, after the life of the silver-bearing product ends, the remaining silver is available to be melted and reused in a different product.
Overall, silver recycling accounted for 18% of the global supply in 2023. That percentage changes each year, but usually hovers around 20% or a bit above. In other words, a large chunk of our silver supply comes from silver already on the surface, in use, and repurposed from a different application.
As usual, it’s not as simple as pulling the metal out of the ground. Countries, well aware of the importance of silver as a trade lever, are more than happy to use their production – or deliberate lack thereof – as a measure to induce favorable outcomes from trade partners.
Worse, a country could legitimately hold back sales from a particular nation that it does not like, or trade silver with other countries hostile to that nation. Unfortunately, the US finds itself at cross purposes with two countries that are in the top 10 for silver production.
The first, and more concerning, is China. China is the second-largest producer of silver in the world, but the relationship between China and the United States may be at a historic low point. It is not outside the realm of possibility that China might hold its silver reserves back from the US – along with some other products – soon.
The other adversary to the US in the top ten for silver production is Russia. For every bit of ill will that Americans have for China, they have it and then some for Russia. Russia is rising as a sort of existential threat to the West, and the notion of risk-free trading with the Russians simply does not exist for the United States.
In other words, it’s not just about where the silver is, but which country has control over it. So, bear in mind that some external factors may also affect the price of silver beyond the simple supply and demand numbers of the industry.
So, the next question is whether a continued shortage is likely for the silver market in the future. The short answer is that yes, demand is likely to continue to outrun supply for silver in the future.
Mine Magazine recently indicated that Mexico is going to be producing significantly less silver by 2030. As a result, global silver production will dip below 900 million ounces in that year.
At the same time, demand for silver is unlikely to decrease. Industrial usage, particularly regarding solar panels, should increase its need for silver.
Investors are probably going to continue buying silver, too. With the floating exchange system present worldwide, the chance to store value in tangible assets is one that many buyers won’t want to miss, especially in down economic times.
Don’t overlook the fact that silver remains popular in jewelry, too. As the world’s population continues to expand, the need for adornments is almost certain to move with it.
There are two mitigating factors that might serve to close the gap between supply and demand of silver.
The first mitigator is that new sources of silver could be discovered at any time. History is full of examples of markets changing dramatically due to the discovery of new resources in previously unexplored locations. Some intrepid cavers in Scotland could stumble across the next Comstock Lode, and the market is suddenly flooded with (cheaper) Scottish silver, for instance. So, it’s important to keep your ear to the ground about any new silver veins that change the conversation.
The other mitigator is when and if technological advances either reduce or eliminate the need for certain industries to use silver. Changes to the way that solar panels are made, for instance, might eliminate their insatiable hunger for silver. More fantastically, it’s possible that a synthetic replacement for silver might become viable, although it’s going to be difficult to synthesize a material that is more conductive, reflective, and viable.
Nevertheless, technological evolution is a constant in our world, so you can never say never about something like that. If either or both events come to pass, supply of silver may be able to meet demand once again.
Long story short, there is a shortage of silver in the world at present. Demand for silver is nearly 200 million ounces over supply, and the situation is probably not going to change any time soon.
However, silver shortages are nothing new. The supply of silver is never a static number, and it waxes and wanes as the needs of humanity change and as our ability to recover it from the earth improves.
The best thing to do is stay informed about market trends and news events that affect the supply of silver. Keep an eye on the industries we discussed, too, as they might produce something new in the future.
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