What a brilliant year for Silver

The precious metals have been rallying incredibly well for a while. Gold, palladium, and copper have all had a wonderful year in 2025. But silver’s and platinum’s rallies have by far been the greatest of all.

Source: Market Pulse

So, why exactly has silver performed so well?

Silver is an alternative to Gold

The most obvious explanation for the recent rally is that silver is perceived as an alternative to gold. Gold, in turn, has been appreciating so well because of the market’s expectations of the Fed’s easing and therefore the USD’s debasement. Silver has always been much more volatile than gold and therefore reacts more actively to money supply and investors’ distrust of the US dollar. However, most analysts and market observers speak of the possible creation of the gold standard, not the silver standard. Moreover, central bankers actively buy gold, not silver.

Source: Bloomberg

The gold held by central bankers is equivalent to the levels observed in the 1970s. During the 1970s, the US abandoned the gold standard while trying to compensate for the budget deficits it experienced during the Vietnam War. This made central bankers get skeptical of the USD and fiat currencies in general while seeking refuge in gold holdings.

But why then has silver performed much better than gold in the last year?

Silver’s volatility

Well, that is mostly due to silver’s higher volatility and also its underappreciation relative to gold.

As can be seen from the graph showing the 1975-2024 period, silver has experienced much bigger swings than gold.

Source: CME Group

In other words, before the miraculous rally in the second half of 2025, silver used to underperform gold according to the gold/silver ratio. This indicator is high when gold is overvalued relative to silver and vice versa.

Gold/Silver ratio

Source: Macrotrends

As you can see from the diagram above, during the 2025 spring, the gold/silver ratio was nearing the 100 mark, very close to all-time highs, suggesting gold’s overvaluation relative to silver. Right now it is close to 60, still over and above the lows reached during past periods. In fact, the ratio of 60 is even above the historical average, hinting at silver’s potential to appreciate further.

Structural deficits and AI

The physical supply of the grey shiny metal is highly limited. The “paper-to-physical silver” ratio is enormously high. According to analyst Faysal Amin, the current paper-to-physical silver ratio is almost 356:1. In other words, for every ounce of physical silver, there are 356 paper ounces in the form of futures, options, ETFs, and other derivatives linked to the silver price.

Silver itself, however, is highly demanded by the high-tech sector. Nowadays, the AI industry is short of silver. Overall, industrial applications are accountable for 60% of yearly silver production.

The grey metal is now heavily used by the electronics, green energy, and automobile industries.

Here are just a few uses of the precious metal:

• Semiconductor makers require silver for conductivity applications.
• 5G network infrastructure relies on silver-intensive components.
• AI data centers’ cooling and electrical systems are made using silver.
• Production of Internet of Things sensor networks also requires silver.
• Solar panels are accountable for a substantial part of silver consumption. Nowadays these require almost 20 grams of silver per unit.
• The EV industry is also accountable for silver demand growth. In order to produce one EV, 25-50 grams of silver are needed, versus the 15-25 grams used in traditional internal combustion vehicles.

Right now even silver price movements on the COMEX, the LBMA, and other commodities exchanges reflect the structural deficits. The CME (Chicago Mercantile Exchange) board increased the cost of leverage for silver futures contracts by 10%. This move should have pushed the grey shiny metal’s prices down. But this did not help. In fact, on 28 December the precious metal’s prices touched a high of $83.90 per ounce. But physical silver prices have recently hit the $130 mark.