Half of mined silver supply comes from Mexico, Peru and China, a tight concentration that leaves output exposed to disruptions while the market runs structural deficits. The Silver Institute put Mexico’s 2025 production at about 173 million ounces, roughly one-fifth of global output, followed by Peru at 130 million ounces and China at 113 million ounces. Mexico’s output fell 5% for a third straight year, while Peru rose 7% and Russia climbed 23% to take fourth place.
By region, North American production slipped 3% to a 10-year low, whereas Central and South America increased 5%, keeping supply weighted towards the Americas. The silver market recorded a fifth consecutive deficit in 2025, with a shortfall of 40.3 million ounces, and the gap is forecast to widen to 46.3 million ounces in 2026 despite rising supply and weaker demand. Prices hit an all-time high above $120 in late January before correcting to around $70; the report cited physical coin and bar demand, product shortages and inflows into Exchange-Traded Products (ETPs), alongside the risk of liquidity squeezes and continued volatility in prices and lease rates.
Market Deficit And Price Dynamics
We are operating in a silver market defined by a persistent structural deficit, now in its sixth consecutive year. Following the dramatic surge to over $120 in January and the subsequent correction, prices have found a footing around $74.50. We view this stabilization not as weakness, but as a base for future volatility driven by tight fundamentals.
The supply side remains a primary concern, with over half of the world’s silver coming from Mexico, Peru, and China. We are particularly monitoring the ongoing labor negotiations within Peru’s mining sector, which has become an increasingly critical source of global supply. Any disruption there could have an outsized impact on prices, given that North American output is already at a 10-year low.
Industrial Demand, Volatility, And Portfolio Strategy
Industrial demand continues to absorb a significant amount of supply, especially from the green energy transition. Global solar panel installations are on track to increase by 15% in 2026, a trend that will further draw down already pressured inventories. This strong, inelastic demand provides a solid floor under the market, limiting downside risk.
Considering these factors, we anticipate a period of rising volatility, with the Silver Volatility Index (VXSLV) currently elevated at 35. We are positioning for this by purchasing long-dated call options, specifically looking at strike prices above $85 expiring late in the fourth quarter. This strategy allows for participation in a significant upward move while defining our risk in a choppy market.
The current drawdown of physical stocks makes the market highly susceptible to a liquidity squeeze, much like what was seen during the market corner of 1980. A renewed surge of investment into Exchange-Traded Products could quickly overwhelm available physical supply. Therefore, our strategy is geared towards capturing sharp, sudden price spikes over the coming months.
