While “shortage” or “squeeze” can sound sensational, in commodities it usually signals a supply–demand imbalance rather than a literal disappearance of supply. In silver’s case, persistent deficits, strong industrial usage, and fragile supply channels have combined to create the type of stress that drives real-world prices higher than the benchmarks traders see on their screens.

The Supply–Demand Imbalance

According to the World Silver Survey 2025, the global silver market is expected to remain in deficit for the fifth consecutive year. The shortfall is projected at around 149 million ounces, narrowing slightly from the record deficit in 2024 but still large by historical standards. This imbalance is being driven primarily by industrial demand in photovoltaics, electronics, and electric vehicles, which continues to grow even as recycling and mine output fail to keep pace.

This structural backdrop is crucial to understanding why premiums have emerged. When annual consumption persistently exceeds annual supply, inventories must be drawn down. Over time, those inventories are depleted, making the immediate delivery of physical silver increasingly valuable.

Why “Above Spot” Happens

1. Backwardation in futures markets
Silver’s futures curve has flipped into backwardation several times in 2025. Normally, futures prices are higher than spot (contango) to cover storage and financing costs. When spot trades higher than futures, it is a sign that traders value immediate delivery more than future promises. This is a hallmark of tight physical markets, and it explains why dealers and industrial buyers are willing to pay above spot to secure metal today.

2. Premiums in physical products
Even in normal markets, fabricated products like coins and bars carry premiums above spot to cover minting, refining, and logistics. In a shortage environment, those premiums can widen sharply. In 2025, popular bullion coins from major mints have repeatedly sold at double-digit percentage premiums over the benchmark spot price.

3. Geography and logistics
Spot silver is quoted as loco London — meaning unallocated metal in London vaults. But real-world users often need silver in Asia, the U.S., or in specific forms like sheets or paste. Transport costs, fabrication bottlenecks, and regional demand spikes can all push the actual purchase price above spot.

4. By-product supply constraints
Silver is mostly mined as a by-product of copper, zinc, and gold. This means higher silver prices don’t automatically lead to higher supply. If base-metal economics aren’t favorable, silver output may stagnate regardless of its price. Traders understand this structural constraint, which helps sustain premiums.

5. Inventory stress
Exchange stocks can ease pressure, but they are not unlimited. Reports in early 2025 noted temporary increases in COMEX inventories, but the broader picture still shows above-ground stocks being drawn down. The result is a system where short-term improvements do little to erase long-term stress.

Industrial Demand: The Sticky Driver

Unlike gold, where investment dominates, silver’s industrial base provides steady, non-speculative demand. In 2025, solar panels continue to account for the largest share of industrial usage. While manufacturers are gradually reducing the amount of silver per panel through technological efficiency, the sheer scale of new solar deployment keeps demand elevated.

Electronics, electric vehicles, and renewable energy infrastructure add further weight to the demand profile. These uses are difficult to substitute without major design overhauls, which means demand remains relatively inelastic even as prices rise.

The Role of Investors

Investor behavior adds volatility to the structural story. Silver’s relatively small market compared to gold means that ETF flows, futures positioning, and speculative trading can swing prices dramatically. In 2025, rallies in gold have often spilled into silver, shrinking the gold–silver ratio and accelerating momentum.

Retail investment demand has cooled somewhat compared to the frenzy of past years, according to Metals Focus, but it remains an important factor in premiums. When investor buying surges at the same time that industrial users are drawing down supply, premiums can spike rapidly.

Risks and Counterarguments

It is worth noting that not everyone agrees the market faces a “shortage.” Economists argue that high prices should eventually balance demand with available supply. Already, some analysts expect the silver deficit to shrink further in coming years as recycling increases and mine supply edges higher.

Others warn of potential corrections. Silver is historically volatile, and sharp reversals are common when speculative positioning unwinds. A sudden macro shift — such as a stronger dollar or weaker industrial activity — could cool premiums and send prices lower.

Outlook for Traders

For traders, the 2025 silver shortage underscores several lessons:

• Spot is not the whole story. Real purchase costs often exceed benchmarks.
• Watch the futures curve. Backwardation signals stress and creates spread opportunities.
• Track premiums regionally. Local shortages can create arbitrage possibilities.
• Respect volatility. Silver’s smaller market size makes it prone to violent swings.
• Keep an eye on supply responses. Recycling and new projects will eventually matter, but not overnight.

Conclusion

Silver in 2025 is a case study in how structural deficits, industrial demand, and physical constraints can create a market where prices diverge from benchmarks. The fact that traders are paying above spot is not an anomaly — it is a symptom of stress in the system.

As long as industrial demand stays firm and supply growth remains sluggish, premiums are likely to persist. For traders, the challenge is not just anticipating price direction, but understanding the microstructure of the market — where, when, and in what form silver is truly available.

Sources

• The Silver Institute, World Silver Survey 2025 – supply/demand and deficit projections.
• Reuters, “HSBC raises 2025 average silver price forecast to $38.56 per ounce” (Oct 2025).
• Barron’s, “Silver Races to $50, Outshining Gold” (Sept 2025).
• Investing.com, “Silver futures inverted as shortage and squeeze underway” (2025).
• CME Group / Investopedia – explanations of contango vs. backwardation.
• APMEX / JM Bullion – primers on premiums over spot for coins and bars.
• Metals Focus (for The Silver Institute) – reports on industrial demand and PV silver loadings.
• Reuters, coverage of COMEX inventories and gold–silver ratio trends (2025).