The precious metals market in 2025 saw a dramatic turn of events: In the first three quarters of the year, London silver prices soared from $36 per ounce to a historic peak of $54.47, a 51.3% increase, far exceeding gold's 38.6%. Silver bars were in short supply in cities like Beijing and Shanghai, and large purchases required reservations a month in advance. However, on October 21st, London spot silver prices plummeted 7.11%, the largest single-day drop since the beginning of 2021. By October 24th, the New York silver price had fallen to $48.07 per ounce, down 11.7% from its peak. Amidst this volatile cycle of surges and corrections, can silver's tight supply persist? Will its price approach or even surpass gold's? Will silver become the most powerful metal in 2025? Industrial demand triggers an 8,800-ton silver supply-demand gap. Silver possesses both financial and industrial attributes, and the 2025 price surge is the result of the resonating dynamics of these two attributes. The underlying driving logic is clearly revealed from these two perspectives: Expectations of interest rate cuts and a correction in the exchange rate ratio are the dual drivers of the financial sector. The Federal Reserve's monetary policy shift has become a key lever for leveraging silver's financial attributes. CME "Fed Watch" data shows that the market is betting on a 99.4% probability of a 25 basis point rate cut in October, and a 94% probability of a cumulative 50 basis point cut in December. This strong expectation of easing significantly reduces the opportunity cost of holding non-interest-bearing assets like silver. Federal Reserve Governor Milan's statement further reinforced this expectation, stating that "the Fed should cut interest rates by 50 basis points." Although the actual cut was only expected to be 25 basis points, the direction of policy easing is clear. The extreme deviation in the gold-silver ratio directly drives price correction. In April 2025, when international gold hit $3,500 per ounce, the ratio briefly surpassed 100, far exceeding the historically reasonable range of 50-70. Historically, when the ratio exceeds 80, silver is clearly undervalued relative to gold, with a 70% probability of rebounding within four to six months. The post-pandemic correction in 2020, when the ratio fell from 123 to 65, is a prime example. As of October 22nd, London spot gold and silver prices were $4,097.94 and $48.44 per ounce, respectively. The ratio has fallen back to around 84, but remains above its historical average, indicating that the recovery momentum has yet to be fully unleashed. The frenzied influx of funds further amplified the gains. Non-commercial net long positions in COMEX silver increased by 6.3% in the third quarter, and silver ETF holdings saw weekly increases exceeding 300 tons on multiple occasions. This coordinated influx of retail and institutional funds pushed silver prices through key resistance levels. The People's Bank of China's increased holdings are even more significant. Silver holdings exceeded 2,200 tons in the first quarter of 2025, marking 18 consecutive months of net increases. This reserve adjustment amidst the "de-dollarization" movement provides long-term support for silver prices. The widening supply-demand gap provides strong support from the industrial sector. Silver's industrial attributes have been unprecedentedly strengthened by the green energy transition, with the explosive growth of the photovoltaic and new energy vehicle industries becoming the core drivers of demand. Data from the Silver Institute shows that the photovoltaic industry consumes approximately 10 tons of silver per GW of installed capacity. Global photovoltaic capacity is expected to exceed 600GW in 2025, with this sector alone consuming 6,000 tons of silver, a 20% increase from 2024. Demand is also strong in the new energy vehicle sector, with each vehicle using 35 grams of silver. If global new energy vehicle sales exceed 15 million by 2025, additional silver demand will reach 525 tons. Combined with emerging demand such as advanced semiconductor packaging, the proportion of silver used in industrial applications has risen to 60% of the total annual silver supply, an increase of 8 percentage points from five years ago. Rigid supply-side constraints exacerbate the supply-demand imbalance. 70% of the world's silver comes from associated copper, lead, and zinc mines. In 2025, a mining strike in the Peruvian Andes lasted over three weeks, impacting 8% of the global associated silver supply. Meanwhile, the Precious Metals Resource Protection Act, currently under review by the Mexican Congress, proposes to increase the export tariff on silver from 7% to 15% and establish export quotas. If passed, this would restrict 12% of the global silver supply. Environmental protection policies are further compressing supply. China's "14th Five-Year Plan for the Prevention and Control of Heavy Metal Pollution" mandates the elimination of smelting capacity with associated silver recovery rates below 50% by the end of 2026. This is expected to reduce domestic supply by 800 tons, or 1.5% of global supply. This gap between supply and demand continues to widen, with a global silver deficit projected to reach 8,800 tons by 2025. The stock-to-consumption ratio is only 0.75, meaning current inventories are only sufficient to support nine months of consumption. "White Oil" at a Crossroads: Potential Upside Potentially Up 18.8% The silver price correction since mid-October is essentially a clash between short-term market sentiment and long-term fundamental support. Market sentiment is directly driven by the exodus of speculative funds following the previous rapid rally. By the time silver prices peaked on October 17, their year-to-date gain in London silver had reached 70.03%, far exceeding gold's 56.77%. This excessive rally has led some to rush to cash in profits. CFTC position data shows that before the October 21st plunge, non-commercial net long positions in COMEX silver had risen to 42%, approaching the historically dangerous threshold of 45%. The bursting of the speculative bubble triggered a chain reaction of sell-offs. Zhengxin Futures Research Institute noted that the positive factors that drove silver prices higher have largely materialized, and the market has entered a period of high-level fluctuations and topping, with significantly increasing pressure for a technical correction. The temporary easing of geopolitical risks has weakened safe-haven support. The Russia-Ukraine conflict, which pushed the gold-silver ratio to 106 in April 2025, showed signs of ceasefire negotiations in October, cooling market risk aversion and diverting funds from the precious metals market to risky assets. Meanwhile, the easing of the Red Sea shipping crisis has reduced the cost of transatlantic silver bar transportation from a peak of $300/ton to $180/ton. The European spot silver premium has narrowed from $1.8/ounce to $0.9/ounce, and the panic premium on the supply side has gradually subsided. Subtle shifts in Federal Reserve policy expectations played a crucial role. While the probability of an October rate cut remains near 100%, hawkish stances from some officials have raised market concerns about the pace of subsequent easing. Fed Governor Waller emphasized the need to "start with a 25 basis point rate cut to observe market reaction," suggesting that subsequent rate cuts may be more cautious. This shift in expectations led to a slight rise in the 10-year Treasury TIPS yield from 1.3% to 1.45%. Historically, a 0.1 percentage point change in real interest rates typically equates to a 0.8 percentage point change in silver prices. Notably, this pullback has not shaken long-term fundamental support. Data from the London Bullion Market Association (LBMA) shows that global silver inventories fell by only 200 tons in October, a significant slowdown from the average monthly decline of 800 tons in the third quarter, indicating that physical demand remains supportive. Although the silver inventory turnover days of domestic photovoltaic companies have dropped from 65 days to 58 days, it remains above the historical average of 40 days. Restocking demand has yet to be fully unleashed, suggesting that the correction is more of a short-term, sentiment-driven technical adjustment than a sign of a trend reversal. A precious metals researcher at Yong'an Futures told Barron's that the recent sharp fluctuations in silver prices have prompted market reflection on three key issues regarding silver prices: First, the current silver shortage is not a short-term phenomenon, but the result of long-term conflicts between supply and demand, and is expected to persist until at least the first half of 2026. From the supply side, there is a significant time lag in the release of new production capacity. Silver mine development cycles typically last three to five years. Even if the current high silver price encourages companies to increase exploration investment, actual production capacity will be difficult to achieve in the short term. The rigid supply constraints of associated minerals are even more pronounced. If copper prices remain below $9,000 per ton, copper mine expansion plans in Peru and Chile will be delayed, directly impacting the supply of associated silver. While recycled silver has growth potential, increasing the recycling rate for medical X-rays from 8% to 15% will take at least 18 months, making it difficult to offset the supply gap from primary ore in the short term. Demand growth, on the other hand, is inherently rigid. The global energy transition will not be slowed by short-term fluctuations in silver prices. The EU's Net Zero Industry Act requires 1 terawatt of photovoltaic capacity to be installed by 2030, and the US Inflation Reduction Act provides a 20% cost subsidy for silver used in energy storage systems. These policies will continue to drive silver demand. The Silver Institute predicts that global demand for silver in photovoltaics will exceed 7,000 tons and for new energy vehicles will exceed 600 tons in 2026, with the combined share of these two factors expected to reach 35% of industrial silver use. Inventory data more directly reflects the extent of the shortage. By October 2025, COMEX silver inventories will have fallen to 18,000 tons, a 22% decrease from the beginning of the year. Silver inventories at the Shanghai Futures Exchange will remain at just 4,500 tons, the lowest level since 2018. Historically, when the global silver stock-to-consumption ratio falls below 1, tight conditions typically persist for 12-18 months. The current stock-to-consumption ratio of 0.75 suggests that the shortage will persist until at least the second quarter of 2026. Furthermore, based on historical performance and current drivers, silver is expected to continue outperforming gold over the next six months. In terms of relative price appreciation, silver's potential for catch-up gains has yet to be fully realized. While the current gold-silver ratio of 84 has declined significantly from 106 in April, it remains above the historical average range of 50-70. Goldman Sachs estimates that if the gold-silver ratio returns to its optimal level of 70, assuming gold remains at $4,000 per ounce, silver prices could rise to $57.1 per ounce, representing an 18.8% upside from current prices. According to institutional forecasts, JPMorgan Chase predicts silver prices will rise to $59 per ounce by the end of 2025, while Citigroup and UBS are optimistic about a range of $58-60 per ounce. Gold's target price range is concentrated between $3,700 and $4,500 per ounce, giving silver a clear relative advantage in price appreciation. Third, the following five factors are most likely to disrupt silver prices over the next six months: Changes in the pace of Federal Reserve interest rate cuts—the most core financial factor influencing silver prices. The market generally expects a 25 basis point rate cut in October (99% probability) and another 25 basis point cut in December (94% probability). If the actual pace of rate cuts slows, silver prices could experience a 5%-8% correction. If the rate cut exceeds expectations, silver prices could break through $60 per ounce. Judging from the statements of Federal Reserve officials and economic data, the Fed is likely to maintain its "two 25 basis point" rate cuts. This relatively certain easing environment will support silver prices, but the "buy anticipation, sell reality" effect after the rate cuts are implemented may cause short-term volatility. Evolution of the Russia-Ukraine conflict - As a geopolitical factor that previously drove silver prices higher, changes in the Russia-Ukraine situation will directly impact the safe-haven premium. Current signs of renewed negotiations between the two sides have increased the probability of easing to 50%. If a temporary ceasefire is reached, silver prices could fall back by 3%-5%. However, if the conflict escalates (with a probability of approximately 30%), silver prices could experience another single-day surge of over 7%. Considering European energy supply and global political dynamics, the probability of maintaining the status quo is approximately 20%, with a relatively neutral impact on silver prices. Implementation of Mexico's export policy. Mexico's "Precious Metals Resources Protection Act" is expected to be voted on in December 2025, with a current probability of passage of approximately 60%. If passed, it would reduce global silver supply by 2.4%, pushing silver prices up by 6%-8%. If it fails (with a 40% probability), it could trigger a 3%-4% correction. The left-wing parties' tendency toward resource conservation in Mexico makes the bill more likely to pass, a significant potential positive for the supply side. Will there be significant breakthroughs in photovoltaic silver reduction technology? Breakthroughs in silver-free photovoltaic technologies, such as copper indium gallium selenide, could weaken silver demand. Currently, the conversion efficiency of these technologies remains lower than that of traditional crystalline silicon cells, and the probability of large-scale deployment by 2025 is only 20%. If a technological breakthrough occurs, silver demand for photovoltaics is expected to decrease by 10% in 2026, exerting long-term pressure on silver prices. If technological progress is slow, rigid demand will continue to support silver prices. The risk of a "non-landing" US economy. If US GDP growth remains above 2% and inflation rebounds to above 3%, the Federal Reserve may pause interest rate cuts or even resume raising them. This "no-landing" scenario has a probability of approximately 25%. Morgan Stanley warns that if this scenario occurs, silver prices could plummet to $37 per ounce, a 23% drop from current levels. However, given August's non-farm payroll figures of only 22,000 new jobs and a rise in the unemployment rate to 4.3%, the US economic slowdown is more pronounced, making the "no-landing" risk relatively manageable. Overall, silver prices will experience a pattern of "short-term volatile consolidation followed by long-term volatile upward movement" over the next six months until the end of 2025. In the short term, silver prices will fluctuate between $46 and $52 per ounce. The previous plunge released much of the speculative bubble. The CFTC's non-commercial net long position has fallen from 42% to 35%, approaching the recommended range of 30%-35%. Excessive bearish sentiment has been corrected. However, the positive impact of the October rate cut and policy uncertainty ahead of the November US election will limit silver's rebound, making a period of volatile consolidation highly likely. In the medium term, COMEX silver prices are expected to break through the previous high of $53.77 and head towards $60/oz. The key drivers are the Federal Reserve's second rate cut in December, further lowering real interest rates; Mexico's export policy, if passed, will exacerbate supply shortages; and the peak season for photovoltaic installations, which will see a concentrated release of physical demand. Goldman Sachs predicts that silver prices could rise by 15%-20% during this period, outperforming gold by 10-12 percentage points. In the long term, silver prices will gradually stabilize as the supply-demand gap narrows, with price increases likely slowing to 8%-10%. On the supply side, recycled silver production capacity will gradually expand, and improvements to the medical X-ray film recycling system could lead to an increase of 300 tons per year. On the demand side, while photovoltaic silver reduction technology is difficult to implement on a large scale, unit silver consumption will gradually decrease, potentially shifting the supply-demand imbalance from extreme shortage to moderate shortage.
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