Falling inventory behind silver price surge: Sprott

[Ben Graham]

Silver this week crossed the $60-an-ounce mark for the first time, as momentum continues to build in one of the best-performing commodities of the year. Analysts at Sprott believe the main driver behind silver’s recent record-setting run has been a dwindling free-trading inventory.

In Sprott’s December precious metals report, analysts led by Paul Wong wrote that the global silver inventory has reached a point where any further demand is “creating price convexity” — when price changes speed up as the metal’s supply tightens.

“In prior commentaries, we have noted that global silver inventories were being reduced to the point where the free float of silver availability would likely result in a possible silver price spike,” Wong wrote, in reference to past reports published by Sprott.

For the year, silver has nearly doubled in value against a backdrop of supply tightness and macroeconomic tailwinds. And despite a violent sell-off of silver in mid-October, that did not lead to further downside, and silver prices stayed above their 50-day moving average.

Silver’s bullish cup and handle. Credit: Sprott

In Sprott, in its latest report, highlighted a multitude of reasons behind silver’s strong performance:

Supply deficit

Silver mine production and recycling, according to Sprott’s estimates, have remained essentially flat for over a decade. On the other hand, industrial demand, especially from solar panels and electronics, continues to surge, which has created a persistent and growing supply deficit.

That deficit is set to reach a fifth consecutive year, with a forecast shortage of approximately 125 million oz. in 2025, taking the cumulative deficit since 2021 to nearly 800 million oz., the firm said.

Tight physical market

In London, silver inventories have plunged since their 2021 peak, reaching a low in 2025. A rapid drawdown signals tightening liquidity and a physical market under stress, which often precedes sharp price moves.

Market dislocation

Meanwhile, uncertainties surrounding tariffs have triggered arbitrage flows into New York, which raised the odds of a localized squeeze such as that seen in London. Silver’s recent addition to the USGS critical minerals list has heightened concerns about future tariffs and raised worries that US silver inventories will not be available to balance prices.

ETF investment

By Sprott estimates, global ETF silver holdings are currently well below their peak (830 million oz. vs. 1 billion oz. in 2021). A return to previous highs would absorb a large share of the current London
stocks, potentially overwhelming available metal and accelerating price gains, it said.

Macro factors

The Sprott report also highlighted several macroeconomic factors contributing to silver’s rise, namely the dynamics of the debasement trade and heightened geopolitical risks that have bolstered the appeal of precious metals.

A steepening yield curve, driven by rising long-end bond yields globally, signals escalating risk, which could lead to currency devaluation and a flight to real/hard assets, Wong wrote.

Meanwhile, China has announced strict new export controls on silver for 2026, which has fueled a rush to secure the metal before the restrictions take effect.

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