from BullionStar:
The Structural Silver Deficit and Price Potential
In a recent interview with BullionStar, renowned silver market expert Peter Krauth, author of “The Great Silver Bull” and editor of Silver Stock Investor, shared compelling insights on why silver could be poised for a historic breakout. Despite already impressive gains in recent years, Krauth believes we’re still in the early innings of a major bull market that could eventually take silver to levels few investors can imagine.
TRUTH LIVES on at https://sgtreport.tv/
Understanding the Persistent Silver Deficit
At the core of Krauth’s bullish outlook is the persistent structural deficit in the silver market. “Supply is about a billion ounces a year. About 850 million ounces or 85 percent comes from mining. And the other 15 percent roughly comes from recycling,” Krauth explained. “Yet for the last four years, on average, demand has been about 1.2 billion ounces per year. So we’re looking at a 20 percent deficit every year for the last four years.”
This ongoing deficit raises a crucial question: How can silver prices remain relatively subdued despite such a significant supply shortfall?
The Secondary Supply Cushion Is Depleting
The answer, according to Krauth, lies in the drawdown of secondary above-ground silver supplies from major exchanges. Since early 2021, inventory levels at the Shanghai Futures Exchange, the London Bullion Market Association (LBMA), and COMEX have declined dramatically—by 40% to 70% depending on the exchange.
Krauth believes these exchange inventories have temporarily buffered the price impact of the structural deficit. Large industrial consumers, especially from the solar sector, have been able to tap into these stockpiles by taking physical delivery against futures contracts. However, this buffer is rapidly depleting.
“This could go on for about maybe 12 or 18 months at the current pace. And after that, we really would dry up this secondary supply of silver,” Krauth notes, referencing a supporting analysis from TD Securities that reached similar conclusions.
The Perfect Storm for Higher Silver Prices
Industrial Demand vs. Investment Demand
The changing composition of silver demand creates what Krauth describes as a perfect storm for higher prices. A decade ago, industrial applications and investment demand each accounted for roughly 50% of total silver consumption. Today, industrial demand has grown to approximately 60% of the market, with investment demand shrinking to 40%.
This shift is critically important because:
-
- Solar sector growth: Solar panel production now consumes almost 25% of annual mine supply, with demand continuing to accelerate
- Technological advancements: Newer solar technologies (Topcon and HJT) require 50-150% more silver per panel than previous generations
- Limited investment pool: When investment demand inevitably returns in force, it will be competing for a smaller portion of available supply
“When that demand comes back in a big way for people who say, I need to get my hands on some physical silver, there will now be less available each year. And that’ll help drive the price up higher and faster,” explains Krauth.
Physical Tightness Already Evident
Signs of tightness in the physical silver market are already appearing. Krauth shared an anecdote about a silver mining executive who revealed that industrial consumers were offering up to $4 over spot price and making advance payments to secure supply.
“We’ve seen lease rates stay high on silver… We’ve seen exchange for physical (EFP) premiums have stayed high. And both of these things speak to serious tightness nonetheless in the silver market,” Krauth notes.
Monetary Factors and Inflation
While much of silver’s recent price action has been driven by industrial factors, Krauth believes monetary and inflation-related catalysts will increasingly come into play.
Inflation and Central Bank Credibility
“I think retail investors and professional investors have really come to terms with the fact that we are in a new paradigm, a new environment when it comes to inflation and that inflation will stay elevated for probably the better part of a decade going forward,” says Krauth.
He sees parallels to the 1970s, when stagflation (weak economy combined with high inflation) created an ideal environment for precious metals. Krauth anticipates central banks will eventually be forced to cut rates even in the face of persistent inflation, severely damaging their credibility.
“Cutting rates in the face of rising inflation is going to tell the market they’ve lost control, they really have no more choice. And again, this is rocket fuel for both gold and silver.”
