Silver's Resilient Rally Amidst Shifting Industrial Demand

Silver prices rally above $72 amid a multi-year supply deficit, even as the solar industry reduces usage. Demand from AI and EVs helps offset the decline.

While the solar industry is dramatically curbing its appetite for silver in favor of cheaper alternatives, the precious metal continues to advance, decisively moving past the significant annual low seen earlier this week. This dynamic highlights a growing market contradiction: aggressive new industrial cost-saving measures are unfolding against a persistent, multi-year global supply shortfall.

A Supply Deficit That Endures

The structural supply gap for silver is now entering its sixth consecutive year. Projections for 2026 anticipate a deficit of 67 million ounces. A key constraint is that approximately 72% of silver is merely a by-product of mining for base metals like copper, lead, or zinc. Consequently, higher silver prices do not readily trigger a swift expansion in primary production, as mining operators remain focused on their principal target metals.

Geopolitics and Currency Provide Tailwinds

Current price strength is being fueled by a softer US dollar and initial signs of de-escalation in the Middle East. Earlier in the week, escalating tensions between the U.S. and Iran pushed the spot price toward $62 per ounce. It has since recovered, trading above $72 today. Reports that Washington is seeking direct talks with Tehran have noticeably eased investor anxiety, providing support for the rally.

The Solar Sector's Thrifting Revolution

A fundamental long-term shift is underway in one of silver's key demand sectors. Despite forecasts for global solar capacity to grow by 15% this year, silver demand from photovoltaics is expected to fall by 7% to about 194 million ounces, according to The Silver Institute.

Leading manufacturers are driving this change. Longi Green Energy and Jinko Solar are preparing for mass production of copper-based panels. Meanwhile, Shanghai Aiko Solar Energy already offers cells that use no silver at all. This successful "thrifting"—the reduction of expensive raw material inputs—is increasingly decoupling the solar industry from the metal's price volatility.

AI and EVs Step In to Bridge the Gap

Other technological frontiers are actively compensating for the solar sector's declining demand. The massive global build-out of data centers for artificial intelligence applications and the continued shift toward electric mobility are creating robust new sources of consumption.

The contrast in automotive use is stark: a traditional internal combustion engine vehicle requires between 15 and 28 grams of silver, while a fully electric vehicle can use up to 50 grams per unit.

The Price Path Ahead

Market experts at J.P. Morgan Global Research forecast an average silver price of $81 per ounce for the current year. This outlook assumes that structural demand for gold remains steady and that the U.S. Federal Reserve avoids unexpectedly restrictive monetary policy.

Ultimately, the price trajectory in the coming months will be determined by a central question: Can the escalating demand from the technology and automotive sectors permanently and fully offset the technological efficiencies being achieved by solar panel manufacturers? The market is betting, for now, that the answer is yes.