Medium Link: https://medium.com/@ankitsharma_86149/silver-shining-more-than-usual-
Course Relevance
This blog is relevant for the following PGDM / UG courses:
- PGDM & BBA Security Analysis & Portfolio Management:
- Examines commodity investing, asset diversification, and risk–return dynamics.
- Explores price discovery, volatility, futures markets, and demand–supply mismatches.
- PGDM Term 3 Indian Financial System and Financial Markets (IFS&FM):
- Links interest rates, inflation expectations, and industrial demand to asset prices.
- Analyzes the impact of global trade, geopolitics, and monetary policy on commodity prices.
Academic Concepts
This blog draws on multiple economic and financial theories:
- Demand–Supply Disequilibrium:
Persistent deficits leading to structural price appreciation. - Safe-Haven vs Industrial Asset Duality:
Silver as both an investment hedge and an industrial input. - Commodity Supercycle Theory:
Long-term demand driven by structural changes like electrification and renewable energy. - Gold-to-Silver Ratio:
Relative valuation framework used by investors to identify mispricing. - Backwardation in Commodity Markets:
A market condition where spot prices exceed futures prices due to scarcity. - Monetary Policy Transmission:
Impact of interest rate cuts on non-yielding assets like precious metals.
Background
Silver, often referred to as “The Devil’s Metal”, is notorious for its extreme volatility.
In 2025, silver shocked global markets by rising from approximately ₹80,000 per kg at the start of the year to nearly ₹2,30,000 per kg by year-end, delivering 144% year-to-date gains on the MCX.
While gold also performed strongly with returns close to 60%, silver outpaced it decisively, sparking debates over whether the rally was a speculative bubble or a fundamental re-rating of the metal.
Historical Context: Silver Through the Ages
Silver mining dates back to 3000 BC in Anatolia (modern-day Turkey). For centuries, it functioned as:
- A store of value
- A medium of exchange
- The backbone of global trade
In India, silver’s cultural and monetary roots run deep. The word “Rupee” originates from the Sanskrit “Rupayakam”, meaning silver coin. During the Mughal era, India was one of the world’s largest consumers of silver, exchanging textiles and spices for silver inflows through port trade.
By the 19th century, silver lost its monetary role due to massive discoveries in California and Mexico. However, in the 21st century, silver has re-emerged—not as currency, but as a strategic industrial metal.
Situation: Why Did Silver Outshine Gold in 2025?
The unprecedented surge in silver prices can be explained by a perfect convergence of three forces:
- High Demand
- Low Supply
- Geopolitical Shifts
Key Drivers of the Silver Rally
1. High Demand: The Dual-Engine Effect
Silver demand is driven by both investment demand and industrial demand.
- Industrial Demand (≈60%)
Silver has the highest electrical and thermal conductivity of any metal, making it indispensable for an electrified economy. - Solar Energy:
Photovoltaic (PV) cells consumed approximately 5,500 tonnes of silver in 2024. The solar sector alone is projected to account for 20% of total silver demand in the near future. - Electric Vehicles (EVs):
EVs use silver in batteries, engine bearings, and circuit boards. Depending on the configuration, each vehicle can use 15–50 kg of silver. - AI, Semiconductors & 5G:
Silver is critical for data centres and high-speed connectivity. With global data centre capacity expected to triple by 2030, demand pressure is set to intensify. - Retail & Cultural Demand (India):
Known as the “poor man’s gold”, silver remains a preferred store of value for Indian households. Seasonal factors like harvest income, weddings, and Diwali led to physical shortages in Indian refineries.
2. Low Supply: Structural Constraints
The silver market has experienced a persistent supply deficit for four consecutive years, exceeding 500 million ounces in cumulative shortfall.
- By-product Bottleneck:
Around 70–72% of silver production comes as a by-product of mining copper, zinc, lead, and gold. This limits the ability to scale silver production independently. - Depleting Mines:
Primary silver mines (only 28% of supply) are aging. India’s Sindesar Khurd mine, the world’s second-largest silver producer, is expected to close by 2029.
Globally, production declines in Peru, Chile, and Argentina add to supply stress. - Long Gestation Period:
Developing a new mine takes 8–10 years, making short-term supply correction nearly impossible.
3. Geopolitical Shifts: The Perfect Storm
Several geopolitical developments intensified the silver rally in 2025:
- US Tariffs (“Liberation Day”)
Silver was initially excluded from the list of exempted critical minerals, triggering fears of higher re-import costs and tightening domestic supply. - China’s Inventory Collapse:
China’s silver reserves fell to a 10-year low, leading to backwardation—a rare indicator of acute scarcity. - Interest Rate Cuts:
The US Federal Reserve’s shift toward rate cuts increased investor appetite for non-yielding assets like silver.
Market Valuation: The Gold-to-Silver Ratio
Investors often track the Gold-to-Silver Ratio, historically ranging between 60:1 and 70:1.
- April 2025: Ratio crossed 100:1, signaling severe undervaluation of silver
- June 2025: Still elevated at 92:1, suggesting further upside potential
Outcome and Future Outlook
Expert forecasts remain bullish:
- Keith Neumeyer predicts silver could exceed $100 per ounce, arguing mining is economically viable only at higher prices.
- BNP Paribas forecasts $100 silver by late 2026.
- Indian brokerages like Motilal Oswal and Axis Securities project prices of ₹2,40,000 per kg, implying 12–20% upside.
Silver has effectively crossed the bridge from being merely a precious metal to becoming a strategic resource for the global economy.
Epilogue: Lessons from Silver’s Rally
The silver story highlights critical insights:
- Commodities can undergo structural revaluation, not just speculative rallies
- Industrial demand can redefine an asset’s investment identity
- Supply-side rigidity amplifies price volatility
- Geopolitics and monetary policy are powerful price catalysts
- Traditional valuation tools remain relevant even in modern markets
Silver’s shine in 2025 was not accidental—it was structural, strategic, and systemic.
Teaching Note
Learning Objectives
After studying this case, students will be able to:
- Analyze commodity price movements using demand–supply frameworks
- Understand silver’s dual role as an investment and industrial metal
- Evaluate the impact of geopolitics on commodity markets
- Apply valuation metrics like the Gold-to-Silver Ratio
- Assess future risks and opportunities in commodity investing
Key Discussion Points
- Is silver’s price surge sustainable or cyclical?
- Should silver be treated more like gold or copper?
- How do industrial metals reshape investment portfolios?
- What role should commodities play in inflation hedging?
Suggested Classroom Activities
- Ratio Analysis Exercise:
Track Gold-to-Silver ratio movements and predict turning points. - Debate:
“Silver is no longer a precious metal—it is an industrial commodity.” - Portfolio Simulation:
Design a diversified portfolio incorporating silver exposure.
Discussion Questions
- What structural changes drove silver’s 2025 rally?
- How does silver’s supply structure differ from gold?
- Can industrial demand permanently alter commodity pricing?
- How should investors choose between physical silver and digital instruments?
