Silver Faces Sixth Consecutive Year of Supply Deficit, How Much Upside Is Left in 2026?

TradingKey - Following its best annual performance since 1979 in 2025, silver ( XAGUSD) prices continued their rally into 2026. Driven by high investor enthusiasm at the start of the year, silver prices hit successive records, breaking above the closely watched $100 per ounce mark for the first time. This breakthrough was not only technically significant but also viewed as a key psychological milestone for market sentiment.

As silver prices rose, the gold-to-silver ratio (the ratio of gold price to silver price) fell accordingly, briefly dropping below 50 to its lowest level since 2012, indicating that silver's performance was significantly stronger than gold's.

However, prices subsequently retraced. Silver is currently fluctuating within a narrow high-level range above $80, with volatility narrowing. Although it remains below the all-time high set last month, the market generally believes the long-term upward trend for silver prices remains unchanged.

According to the 2026 Silver Market Outlook recently released by the Silver Institute, the current strong performance of the silver market remains supported by solid fundamentals.

The report notes that the global silver market is expected to face its sixth consecutive year of structural supply-demand imbalance in 2026, with the supply deficit potentially widening further to 67 million ounces.

Analysts stated in the report that the core factors driving silver's sustained strength throughout much of 2025 remain in play in early 2026. These include persistent tightness in London spot silver inventories, rising global geopolitical risks, uncertainty regarding U.S. policy directions, and ongoing market concerns over the independence of the Federal Reserve.

Against this backdrop, investors are increasingly focused on a core question: Are current supply-demand imbalances and safe-haven sentiment sufficient to drive silver higher in the future?

Silver Demand Landscape

The Silver Institute noted that the structure of silver demand in 2026 is showing divergence. A resurgence in investment enthusiasm has become a key driver for rising silver prices, while elevated price levels are dampening traditional consumption such as silver jewelry. Meanwhile, overall industrial demand is slightly soft, with some sectors under pressure, though it still possesses mid-to-long-term growth potential driven by emerging technologies like new energy vehicles and artificial intelligence.

In terms of investment, silver is returning to the market's focus. The report indicates that physical investment is expected to grow by 20% to 227 million ounces, the highest level in three years. After three consecutive years of decline, Western physical investment is expected to recover in 2026, as silver's exceptional price performance and ongoing macroeconomic uncertainty reignite investor interest. Amid optimistic investor sentiment, Indian investment demand is also likely to continue growing following a significant increase last year.

Silver jewelry, a key component of the jewelry sector, has also been significantly affected by rising prices. Silver jewelry consumption is expected to decline for the second consecutive year in 2026, falling 9% year-on-year to 178 million ounces, a new low since 2020.

The report states: "Similar to 2025, record-high prices are expected to curb consumption in most major markets, with India being the most affected. China will be the primary exception, where demand is expected to grow slightly, supported by product innovation and the increasing popularity of gold-plated silver jewelry."

On the industrial side, although overall demand is expected to fall by 2% to approximately 650 million ounces, a four-year low, the downward pressure is mainly concentrated in the photovoltaic (PV) industry. The PV industry's usage in 2024 already accounted for nearly 29% of total industrial silver consumption. Silver paste in each solar panel is a critical material for enhancing energy conversion efficiency. Despite the industry's continuous efforts to reduce usage, demand in this sector remains resilient over the long term due to the rapid growth of global installations.

The report also points out that various silver applications continue to benefit from favorable trends. In particular, the expansion of data centers, AI-related infrastructure, and the smart vehicle industry is driving rising end-user demand, partially offsetting the decline in usage from the PV sector.

In the field of electric vehicles (EVs), silver is also a core metal in batteries, circuit systems, and electronic components. With the rising penetration of EVs, demand for silver is set to continue expanding. The Silver Institute predicts that silver usage in the EV sector will achieve an average annual growth of 3.4% by 2031, at which point the sector will account for 59% of the automotive market.

Meanwhile, in electronic products and communication equipment—including printed circuit boards, semiconductors, and switching systems—average annual silver usage is approximately 240 million to 260 million ounces.

As AI data centers accelerate their expansion, silver demand is being further pulled. Goldman Sachs ( GS) predicts that global data center power consumption will grow by 165% from current levels by 2030. If related infrastructure is deployed rapidly, it will bring an additional demand of approximately 67.5 million ounces of silver.

In the medical field, silver is widely used in wound dressings, catheters, and water purification devices due to its excellent antibacterial properties. Furthermore, in chemical catalysis, silver is a key raw material for producing basic chemicals such as ethylene oxide and formaldehyde, and its unique properties are difficult to replace.

Rising Silver Supply

On the supply side, total global silver supply is expected to grow by approximately 1.5% in 2026 to 1.05 billion ounces, the highest level in a decade. Mined silver production is expected to increase slightly by 1% to 820 million ounces, mainly due to increased output from existing mines and the gradual commissioning of new projects.

From a regional perspective, primary silver mines in Mexico will remain a key driver of production growth. With progress in infrastructure expansion, China is also expected to contribute additional volume, particularly as capacity is potentially released from China Gold International’s Jiama polymetallic mine. At the same time, Canadian silver production is also set to grow, benefiting from new mine commissions and capacity expansions at existing sites. Core projects include Hecla Mining’s Keno Hill mine and the New Afton mine, currently being acquired by Coeur Mining from New Gold Inc.

The Zgounder mine in Morocco has completed construction and is gradually entering a stable operational phase, injecting new supply into the country's silver output. Conversely, production at some mines in Peru is expected to decline, such as Nexa Resources' Cerro Lindo mine and Buenaventura's Tambomayo mine, which may partially offset the overall local supply.

By resource type, silver production as a by-product of primary gold mines is expected to grow modestly. The Pueblo Viejo mine in the Dominican Republic, the Salares Norte mine in Chile, and the Nezhda mine in Russia are expected to be the largest contributors.

Primary silver mining is expected to remain flat compared to the previous year, accounting for approximately 28% of total global mined silver. By-product silver from base metal mines, such as zinc and lead mines, is expected to decrease slightly, primarily due to pressure on smelter operations amid low prices.

Although output for certain metals is limited, overall prices for precious metals, including gold, silver, and copper, remain at relatively high levels. Supported by current healthy profitability, mining companies are expected to increase capital expenditure, thereby driving capacity expansion over the coming years.

Meanwhile, total silver recycling is expected to achieve 7% growth, potentially exceeding 200 million ounces for the first time since 2012. Among these, silverware recycling leads the growth, primarily as high prices have incentivized consumers to liquidate holdings, while other recycling sources also show year-on-year increases near double digits.

The Future of Silver

The Silver Institute concluded that while demand in some sub-segments shows weakness, total global silver demand is still expected to exceed supply, and the supply deficit is expected to persist through 2026.

So, will the current supply-demand imbalance drive prices even higher?

From the current situation, if key industries such as EVs, PV, and AI continue to drive up silver demand while supply struggles to keep pace, prices still have the potential for another leg up. Conversely, structural variables such as an economic slowdown or technological substitution could also become potential constraints on rising silver prices.

Therefore, investors should closely monitor several key variables, including China's policy direction on silver exports, industrial production data, and manufacturing refresh cycles. These factors will directly influence the direction of price volatility and the market's pace.

In summary, the silver market in 2026 is filled with both potential opportunities and significant uncertainties. As technology continues to advance, this resource, once considered a "traditional metal," is playing an increasingly critical role.