The supply shortage is increasing
Fundamental data for 2024 points to a widening gap between silver supply and demand. Production rose just 2% to 1.03 billion ounces, while demand rose 7% to 1.21 billion ounces, leaving the market with a deficit of 182 million ounces. This is the fourth consecutive year of undersupply, largely driven by industrial demand for green technologies. Solar panel and electric vehicle manufacturing remain key growth sectors, with forecasts suggesting that solar energy production could consume the majority of the world’s silver production by 2050.
China’s $411 billion infrastructure stimulus plan for 2025 is expected to further boost demand for industrial silver, in line with the country’s renewable energy initiatives. However, silver price action is subdued, indicating that broader macroeconomic forces are currently dominating market sentiment.
The strength of the Federal Reserve and the dollar weigh heavily
Silver’s upside remains limited by Federal Reserve policy and the strength of the dollar. After delivering three rate cuts in late 2024, the Fed now expects only 50 basis points of easing in 2025. This measured approach supports the dollar and keeps Treasury yields high, reducing the appeal of non-yielding assets like silver. The rise in 10-year Treasury yields to 4.641% is adding to silver’s opportunity cost, putting further pressure on prices.
Geopolitical uncertainty provides modest support
Despite headwinds, geopolitical tensions provide some support for silver as a secondary safe haven. Ongoing unrest in Ukraine and the Middle East has boosted demand for gold, which indirectly benefits silver. In addition, continued gold purchases by central banks are contributing to stability in precious metals markets, preventing deeper price declines for silver.