Silver Near $40: Deficits and Demand Fuel the RallySilver prices surged to multi-year highs in July 2025, driven by an extraordinary convergence of bullish factors, pushing prices above $39 per ounce, levels last seen in 2011.
Silver’s rally, supported by robust industrial demand and safe-haven inflows, aligns with traditional patterns as the U.S. dollar has weakened over 2.3% over the recent period.
Macroeconomic Drivers and the U.S. Dollar
Silver's rally is unfolding around shifting macro conditions. The Federal Reserve has kept interest rates at a restrictive 4.25-4.50% throughout 2025 due to persistently high inflation (2.7% YoY). However, expectations for more rate cuts are growing, with the CME FedWatch tool showing a 59.8% probability of a cut at the September meeting as of July 28.
Adding to the complexity, U.S. trade policies have triggered significant market volatility and raised concerns over a potential supply shock. The U.S. administration has imposed steep 30% tariffs on imports from Mexico, set to resume on August 1. This has heightened fears, as Mexico is the world’s largest silver producer and supplies over half of U.S. silver imports.
But macro drivers aren’t the full story. The real force behind silver’s rally lies in the physical market itself. A structural supply deficit, escalating industrial demand, and growing investor appetite from Asia and North America, are proving to be far more pivotal than shifting rates or a softer dollar.
Physical Market Dislocation and Industrial Demand
The year 2025 marks the fifth consecutive year of a structural deficit in the global silver market, and the imbalance between supply and demand shows no sign of easing.
With minimal new mining capacity expected to come online and lengthy lead times for project development, supply constraints are structural rather than temporary.
Since 2021, the cumulative shortfall has reached nearly 800 million ounces (25,000 tons), steadily drawing down available inventories and tightening the market.
Industrial demand remains the central pillar of silver’s bull market. Forecasts for 2025 project record consumption of roughly 700 million ounces, driven by rapid adoption in green technologies and digital infrastructure. The electrical and electronics sector, which includes solar photovoltaics (PV), consumer electronics, automotive electronics, power grids, and 5G networks, has increased its silver usage by 51% since 2016.
Solar PV alone consumed approximately 197.6 million ounces in 2024, a record largely driven by China’s 45% expansion in solar capacity. With global EV production expected to approach 20 million units in 2025, automotive silver demand alone could exceed 90 million ounces.
Together, persistent deficits, accelerating industrial consumption, and capital flowing into physically backed investment vehicles are creating a market where available silver is increasingly scarce, amplifying upside pressure on prices regardless of short-term macroeconomic shifts.
COMEX silver inventories peaked at 504.72 million ounces on May 11 but have since eased back to levels last seen on April 24, indicating a recovery in demand following the large accumulation in US inventories post-tariff shock.
Positioning and Ratios Favour Gains
With net inflows of 95 million ounces in the first half of 2025, silver ETP investment has already surpassed the total for all of last year. By June 30, global silver ETP holdings reached 1.13 billion ounces, just 7% below their highest level since the peak of 1.21 billion ounces in February 2021
Futures positioning has also surged , with long positions up 163% over six months. These factors have helped propel silver prices over 35% higher year-to-date, building on a 21% gain in 2024.
The iShares SLV ETF netted inflows of $1,467.5 million over the past 3 months.
Physical silver investment demand remains robust, with significant buying from Asian markets. India, the world’s leading silver importer, saw record purchases of physical bullion and silver-backed ETFs during the first six months of 2025.
The gold-to-silver ratio, currently in the late 80s, remains historically elevated, suggesting silver remains significantly undervalued compared to gold. This indicates substantial upside potential for silver, especially given persistent market deficits, rising industrial and investment demand, and gold rising at the same time.
Hypothetical Trade Set-up
The silver market’s bullish fundamentals appear increasingly robust. Investors may consider accumulating silver positions, viewing short-term consolidations as attractive buying opportunities amid the compelling long-term outlook.
Options open interest for the September contract shows a bullish bias with a put/call ratio of 0.82 and high call interest at the far out-of-the-money call strike of $45 per ounce.
To express a bullish view on silver, investors can deploy a long position in CME Silver futures expiring in September. A hypothetical trade setup for this view is described below.
● Entry: $38.00 per ounce
● Target 1: $40.00 per ounce
● Target 2 (extension): $42.00 per ounce (if Fed easing in September coincides with physical tightness)
● Stop Loss: $36.70 per ounce
● Profit at Target 1: $10,000
● Profit at Target 2: $20,000
● Loss at Stop: $6,500
● Reward-to-risk ratio: 1.54 (Target 1) and 3.08 (Target 2)
Alternatively, investors can exercise the same view using CME Micro Silver futures, which offer smaller notional positions and more flexibility. Each Micro contract is priced in USD per ounce and represents 1,000 ounces of silver, compared to 5,000 ounces for the standard contract.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme .
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