Silver Squeeze 2025: How the Supply Deficit is Impacting Prices

Silver has emerged as a standout investment in 2025, with prices experiencing a meteoric rise. Silver Exchange Traded Funds (ETFs) have delivered returns exceeding 100% this year, surpassing most other asset classes. This surge has propelled silver to trade around Rs 1.8 lakh per kg in the domestic market, marking a historic high. This begs the question: What’s driving this “Silver Squeeze,” and how is the ongoing supply deficit impacting prices?

Silver’s Dual Role: Investment Haven and Industrial Powerhouse

Silver distinguishes itself by functioning both as a reliable monetary metal and a crucial industrial commodity. This unique combination is significantly influencing its current market dynamics. In the first half of 2025, silver prices surged nearly 25%, building upon a 21.46% increase in 2024. This impressive growth is fueled by persistent supply shortages, increasing demand from green technologies, and heightened buying activity from retail investors, particularly in Asia and North America.

The Anatomy of the Silver Supply Deficit

The global silver market has been in a structural deficit since 2021, with the cumulative shortfall from 2021 through 2025 reaching almost 800 million ounces. Several factors contribute to this persistent deficit:

Declining Mine Production: Silver mine production has decreased by 7% since 2016, even as demand has soared.
Surging Industrial Demand: Silver is essential for technologies driving global electrification, including solar panels, electric vehicles, 5G networks, and advanced consumer electronics. Industrial use accounted for approximately 59% of silver demand in 2024, and is projected to exceed 700 million ounces in 2025.
Limited Primary Silver Producers: Only about ten primary silver producers exist, with approximately 70% of silver production coming from gold and copper miners. This makes silver supply less responsive to price changes.
Increased Investment Demand: Institutional and retail investors are increasingly turning to silver. In the first half of 2025, silver-backed ETFs experienced inflows of over 95 million ounces, effectively removing this silver from available supply.

Key Factors Influencing Silver Prices in 2025

Several interconnected factors are shaping silver’s performance in 2025:

Industrial Demand: The increasing use of silver in various industrial applications, especially in green technologies, is a primary driver. Silver’s superior thermal and electrical conductivity makes it indispensable in electronics and renewable energy sectors like photovoltaic solar cells.
Investment Demand: As global economies grapple with inflation and unpredictable markets, silver’s safe-haven appeal becomes more attractive. Investors often seek silver to preserve value amid economic uncertainties.
Monetary Policy: Central bank decisions, particularly regarding interest rates, significantly impact silver prices. Anticipated rate cuts throughout 2025 could provide substantial support for precious metal prices, including silver.
Market Volatility: Economic instability and financial market fluctuations often lead to volatile swings in commodity prices, including silver.
Geopolitical Tensions: International relations and geopolitical strife can trigger a flight to safety among investors, boosting demand for silver and other safe-haven assets.
Supply Constraints: The availability of silver resources and mining output significantly dictate supply levels. Factors like mining yields, regulatory impacts, and environmental concerns can constrain supply, potentially driving prices higher.

The Impact of Macroeconomic Factors

Macroeconomic developments have created a distinctive pricing environment for silver. Weaker employment data in the U.S. has increased expectations for dovish Federal Reserve policy, reducing the opportunity cost of holding non-yielding assets like precious metals. The inverse correlation between the U.S. dollar’s strength and silver prices also plays a role. A weaker dollar typically benefits silver, making it more affordable for holders of other currencies.

Regional Dynamics: London, India and Beyond

The silver squeeze is manifesting differently across various regions:

London: London’s silver market is experiencing a short squeeze, with benchmark prices rising above $50 per ounce. Liquidity has nearly vanished, and traders short on the physical market struggle to find metal, leading to high borrowing costs. London silver inventories have fallen by one-third since mid-2021.
India: India has emerged as a significant force, with increased demand coinciding with dwindling inventories in London. Some Indian exchange-traded funds have suspended new inflows due to a lack of available metal.
United States: To cover the shortfall in London, the U.S. is sending silver to the U.K.

Potential Price Targets and Expert Opinions

The outlook for silver in 2025 appears bullish, with most predictions indicating significant potential for price appreciation.
* HSBC anticipates silver will trade within a range of $45.00-$53.00 per ounce for the remainder of 2025.
* Motilal Oswal anticipates stabilization around $50-55 in coming months, with potential highs of $75 per ounce by 2026 and progression towards $77 per ounce in 2027.
* Bank of America has increased its silver projection to $65 an ounce, averaging $56.25, despite expecting 11% lower demand next year.

Investment Strategies and Considerations

Given the current market dynamics, investors should consider the following:

Portfolio Diversification: Silver’s dual nature as an industrial metal and monetary asset provides unique diversification benefits.
Long-Term Perspective: Silver is considered a long-term investment, acting as an income protector rather than an income-producing asset.
Monitor Market Trends: Staying informed about market trends and potential catalysts that may affect silver prices is essential for making sound investment decisions.
Be Aware of Volatility: Silver prices can be volatile due to economic instability, financial market fluctuations, and geopolitical tensions.

Conclusion: Navigating the Silver Squeeze

The “Silver Squeeze 2025” is a multifaceted phenomenon driven by a persistent supply deficit and increasing demand from both industrial and investment sectors. While short-term price fluctuations are possible, the long-term outlook for silver remains positive, supported by its essential role in green technologies and its appeal as a safe-haven asset.