Silver has surged to triple digits for the first time in history. The spot price touched $100 on Friday morning, marking one of the most dramatic repricings in modern commodity history.
A year ago, silver traded at $30.5 per ounce, but unlike past silver manias, driven primarily by speculative excess, the current surge is different. Persistent deficits, inelastic supply, and tightening geopolitical control formed a precious metal juggernaut – a force that pushed beyond levels just recently thought unattainable.
Deficits Make The Difference
What separates today's silver rally from those of 1980 or 2011 is the presence of a sustained, structural supply deficit. In both historic rallies, silver ultimately folded because physical inventories stepped in. First, in the 1980s, when the Hunt brothers tried to corner the market, COMEX raised margins and imposed liquidation-only rules. Then, in 2011 ETF-driven investment rally faded when above-ground reserves met the surge.
Today's reality is different. Silver has experienced multi-year deficits, with demand consistently exceeding mining and recycling. Notably, industrial demand from solar, electric vehicles, and electronics has surged – boosting silver's role in the global economy.
Even when CME recently shifted from a fixed margin to a scalable one, the rally didn't stop. Higher margins might reduce leverage and force weaker traders out – but they don't create new ounces. In a market starved of physical supply, margin mechanics can slow participation—but they cannot reverse a deficit that has been years in the making.
Inelastic Supply
Higher prices can't solve the problem, at least not quickly. Roughly 70% to 80% of global silver production comes as a byproduct of mining other metals such as copper, lead, zinc, and gold. That means silver output is largely dependent on the economics of markets entirely different from it.
Silver production cannot scale without a corresponding increase in base-metal production. New primary silver mines are rare, and on top of that, it takes years to permit, finance, and build. Recycling helps, but it has not been sufficient to close the deficit gap.
China's Bottleneck
China's role has become the final pressure point. Beijing, the world's largest silver refining hub, has tightened export controls from January 1, reclassifying silver as a strategic commodity.
“Beijing knows every single ounce and who’s doing it,” veteran commodity trader Francis Hunt recently said.
While not an outright ban, it now controls the outflow through 44 licensed companies. Thus, silver exports are now a political decision rather than a market response.
The impact has been immediate. Physical silver premiums in Shanghai have surged, lease rates have spiked, and inventories in Western hubs such as London and Zurich have tightened further. With China controlling a dominant share of refining capacity, any export constraint reverberates across the global supply chain.
As a result, the gap between paper and physical markets became undeniable. Physical coin dealers in hubs like Dubai charge at least $34 above the CME futures price.
Such a premium shows the value of a coin in hand over the promise of a coin in a vault that may or may not exist.
Image: Shutterstock
