Return of the Devil's Metal

This article was written by Richard Horswill. All views and opinions expressed are strictly his own.

Back in January of 2023 I highlighted how the Reddit retail investment community targeted silver as they had done in the case of Game Stop, a video game retail outlet that a hedge fund had shorted. The upshot was the bankruptcy of the hedge fund Melvin Capital. The small investors had taken on the big guns and won! Could silver really have been the next retail target? The real answer was no. Silver has had many false dawns in the past primarily due to its monetary investment thesis which has alway been its Achilles heel. Back in 1980, the Hunt brothers took on massive physical and leveraged positions in silver only to be bankrupted by the speculative nature of their actions and the margin hikes that were requested by the exchange to to quell volatility. The same can be seen in the bubble of 2011 as the market collapse occurred as the leveraged entities had to commit to margin increases which eventually led to long liquidations. With silver now hitting all time highs again, the question on many investor lips is one that asks, is this time different? 

The fundamental reasons provided for silver to be a target for speculators previously was not purely based upon a monetary reason although that was a big part in its interest due to the many monetary debasement theories, but was as much based on its utility as an industrial metal. Its increasing industrial uses in electronics, solar, battery technology, EV’s, military use and medicine. The future looked bright for silver back then and still very much does today but with possibly some extra bite. With approximately 60% of production in industrial applications at that time and growing, and now estimated to be hitting as much as 80% industrial, with the balances being provided for in jewellery and bullion coin and bar as investment. Are we about to see a repricing of the devil’s metal on the back of structural supply shortages or will more metal be forthcoming through production increases to dilute any price spikes?

Over the last five years the above ground supply is estimated to have  decreased by as much as 800 to 1000 million ounces due to the massive demand from solar now taking as much as 25% of the entire pie. However, competition for silver atoms now comes from AI in the form of massive data centre buildout plus the increasing demand in EV’s. The latter potentially tipping silver into even bigger deficits as solid state silver carbon anode battery technology looks likely to come on stream in 2027. Each battery pack per car uses as much a 32 ounces. Production of silver however has stagnated primarily due to 70% of silver being a byproduct of gold, copper, zinc and lead, thus increases in silver production rely upon non silver-based mining operations that are highly unlikely to change their mining practices to increase silver production. Primary silver production from known mines is also struggling to increase its footprint due to degradation of ore grades. Finally, substitution engineering could take years to accomplish. Thus, in the medium term, we are somewhat reliant on exploration companies coming up with new deposits and getting them online quickly, which seems a tall order! With environmental concerns and geopolitical risks, significant supplies provided by new entrants could be years away.

The US recently added silver to its critical mineral list, possibly a little late for is own good particularly as China has all but killed off silver exports from January 1st 2026, strategically hoarding silver to protect its own solar and EV industries. China is seen as the refinery capital of the world providing as much as 20% of global capacity and as such could be in a position to squeeze Europe and the US as it has done with rare earth metals. Inelasticity in both demand and supply dynamics could push silver well into three figures in 2026. At what point, though, will strong hands release hoarded metal? There is still plenty of above ground supply; however, it is not necessarily in a market deliverable format which leads me to believe that we will see much higher prices in the coming months as exchanges struggle to maintain stock as an immediate delivery mechanism.   Due to exchanges receiving exceptional delivery requests, potential force majeure circumstances could be prescribed by exchanges if inventories are not forthcoming. Price will be the determining factor as backwardation seems to be the likely path and could be baked in for the foreseeable future. This scenario will prise metal from retail sources but it’s a slow burn and the market will likely be highly volatile in the meantime.

So where might silver be headed particularly in relation to gold due to its  historical high correlation? The silver/gold ratio in April of 2020 had blown out to 128:1 however, the ratio at that point was at an extreme level. I principally put this down to historical manipulation of precious metals to protect the dollar system, with silver being the more easily manipulated as a smaller market and therefore was more easily controlled by the paper derivative market. Gold on the other hand was moving higher as a consequence of excessive monetary stimulus with it being bought in  its traditional role as a safe haven asset hence the widening ratio. Gold has also very much benefited from the confiscation of Russian treasury securities which weaponised the U.S. dollar and has led to some insecurity in the US bond market. However, now we have the ratio moving towards a more normal level. The question is where does the ratio get to in this tight supply period? History may provide us some clues with a ratio of 30:1 in 2011 with 15:1 being hit in 1980. The structural supply deficit will certainly sharpen minds and could create further geopolitical tensions. 

Could this be silver’s time to shine brightly and reclaim what many believe is a true reflection of its importance in the modern technological world we now inhabit? In light of its current relevance and with no substitute in the wings that has its immutable qualities it would seem that the only way is up. It’s called the Devil’s metal for a reason!