Paper Markets Artificially Suppress Silver Prices. Major Correction Possible?

• Silver is experiencing its fifth consecutive year of structural deficit, with industrial demand consistently outpacing production.
• As a critical component in electronics, renewable energy, and emerging technologies, silver's industrial applications continue to expand.
• Despite gold reaching all-time highs, silver prices remain artificially suppressed through paper market mechanisms, creating potential for significant price correction.
• The paper-to-physical ratio exceeds 350:1, with banking interests actively working to manage price movements through futures contracts.
• With projections pointing to $40 silver by year-end, investors have a chance to position themselves before fundamental factors force a significant price adjustment.

The Silver Market

Silver stands at a pivotal crossroads in 2025, presenting investors with a rare opportunity that combines industrial demand growth, monetary protection, and significant price appreciation potential.

Often overshadowed by gold in the precious metals conversation, silver's unique dual role as both an industrial commodity and monetary asset creates a compelling investment case.

The disconnect between silver's fundamental value and its current market price has widened to historically significant levels, setting the stage for what could be a substantial price adjustment.

This analysis examines the key factors driving silver's investment thesis, from supply-demand fundamentals to market structure dynamics, providing investors with a comprehensive view of why silver deserves serious consideration in any forward-looking portfolio.

Impact of Tariffs on Silver & Gold

Recent tariff implementations between the United States and Canada have introduced new complexities to the precious metals market. These tariffs, ostensibly designed to bring manufacturing back to the United States, may instead create unintended consequences for the silver market.

In our analysis, these measures will ultimately create inflation and harm both the United States and Canada. The challenge extends beyond the immediate economic impact—it threatens to disrupt established supply chains for strategic metals like silver that are essential for American manufacturing.

For the silver market, tariffs could significantly alter trade flows. If a 25% tariff were applied to silver imports from Mexico, producers would likely redirect shipments to alternative markets, bypassing the United States entirely. Mining companies could route silver through Canadian refineries instead. While this would increase transportation costs slightly, a 25% tariff would make shipping to the US economically unviable. The ultimate result would be reduced silver availability in the United States, harming American manufacturers.

This redirection of silver flows could exacerbate already tight supplies within the U.S. market. American manufacturers requiring silver for circuit boards, windows, and various coating applications would face higher input costs, potentially accelerating inflation across multiple industrial sectors. The disruption highlights silver's strategic importance—not just as an investment asset, but as a critical industrial metal.

M&A Activity in the Silver Sector

The silver sector has seen a notable increase in mergers and acquisitions activity, reflecting growing recognition of the metal's long-term value proposition. Several significant transactions have been announced recently, including First Majestic Silver's acquisition of Gatos Silver and Discovery Silver's announcement on acquiring Newmont's Porcupine Complex.

This consolidation trend stems from producers' desire to secure reliable production assets during a period of constrained supply. Industry players are particularly focused on acquiring producing assets rather than early-stage exploration projects.

The most valuable M&A targets are producing assets or those close to production—projects where the mill is under construction, permits are in place, and only time and capital stand between the current state and cash flow generation.

Lon Shaver of Silvercorp Metals highlights the scarcity of new development:

"It's very hard as a silver company to grow in silver. Just look at our peers. There's not a lot of new assets being developed to grow silver production; rather, we're just seeing more M&A of existing assets."

The preference for established production over exploration reflects the challenges inherent in the silver mining sector. New silver projects face substantial permitting hurdles and extended timelines before generating revenue. This reality has created a premium for existing production, driving valuations higher as available assets become scarcer.

The M&A trend also highlights a growing awareness of silver's strategic importance among larger industry players. As the disconnect between physical demand and price continues, companies with the financial capability are positioning themselves to benefit from future price adjustments by securing production now.

Supply & Demand Imbalance in Silver

Perhaps the most compelling argument for silver investment stems from the persistent supply-demand imbalance that has characterized the market for five consecutive years. According to industry reports, silver faces a structural deficit that shows no signs of abating.

The price discovery mechanism is not functioning as it should, pointing to the disconnect between physical market fundamentals and quoted prices. This divergence creates an unsustainable situation that must eventually resolve.

Michael Konnert, CEO of Vizsla Silver, emphasizes this opportunity:

"Silver probably has the most attractive supply and demand equation out of any metal here. And it's such a small market that any real movements in that can cause the price of the metal to multiply very rapidly."

He further notes that investors are increasingly drawn to the sector because "There's such a lack of quality silver names out there and they want silver because they know we're in a fifth year of a supply deficit."

George Paspalas, CEO of MAG Silver, shares this assessment:

"Silver is technically in a wonderful position for strong sustained price uplifts moving forward… a commodity that's been in successive deficits now for six years. Inventory is declining and consumption increasing. When you get the supply-demand inventory decreasing scenario that we've got in silver, the price can only go one way."

The demand side of the equation continues to strengthen. Silver's industrial applications are expanding rapidly, encompassing everything from consumer electronics to green energy infrastructure. In our assessment, virtually everything that produces electricity requires silver. This applies regardless of the energy source—whether renewable or traditional, the electrical infrastructure requires substantial amounts of silver.

Dan Dickson, CEO of Endeavour Silver, highlights this trend:

"Silver's rise has been driven by industrial demand and supply constraints. The global shift to electrification, renewable energy, and electric vehicles is driving demand for silver in solar panels, batteries, and key technologies. We also expect demand as a safe haven asset to have a greater impact on the silver market going forward."

Lon Shaver, President of Silvercorp Metals, shares this positive outlook:

"Obviously we like silver. We're very happy with silver. It's a very unique metal, given its characteristics and bridging both the precious and base metal attributes. There's demand attributes for silver that we think paint a positive picture for the metal—not just now, but for the coming years."

Even nuclear power, often overlooked in discussions about silver demand, represents a significant consumption driver. Nuclear plants require substantial quantities of silver for cooling systems and safety mechanisms. As countries increasingly pursue energy independence, silver demand from the power generation sector alone could strain available supplies.

Even nuclear power, often overlooked in discussions about silver demand, represents a significant consumption driver. Nuclear power plants require silver for the control rods. As countries increasingly pursue energy independence, silver demand from the power generation sector alone could strain available supplies.

The supply side, meanwhile, faces significant constraints. Silver mining has not kept pace with growing demand, particularly as many silver mines have closed or reduced output during previous periods of price suppression.

This information asymmetry contributes to market inefficiency and may be delaying the price adjustment needed to incentivize new production. An inflection point may arrive when a major manufacturer announces production interruptions due to silver shortages—perhaps when a technology giant can't produce smartphones, vehicles, or appliances because they can't secure adequate silver supplies.

Challenges Facing Silver Pricing

Despite compelling fundamentals, silver prices have remained surprisingly subdued compared to gold. While gold has recently broken through to new all-time highs, silver trades at a gold-to-silver ratio approaching 90:1, far above historical norms.

This ratio seems disconnected from reality. Silver is an essential, strategic metal without which modern electronics would be impossible, yet it remains poorly understood by mainstream markets. The metal's critical importance to technology and infrastructure stands in stark contrast to its current valuation.

This pricing anomaly stems partly from silver's dual role as both an industrial metal and monetary asset. Unlike gold, which is primarily valued for its monetary properties, silver faces complex demand dynamics that can obscure its true value.

The pricing challenge is further complicated by limited transparency regarding industrial consumption. Major companies using silver in their products—from automakers to electronics manufacturers—typically don't disclose their usage levels. If you were to ask an electronics manufacturer how much silver is in their devices, they likely wouldn't know, as they're merely assembling components from various suppliers.

This information gap extends to the component level, with complex supply chains masking end-use consumption. Our estimate is that a typical computer contains approximately two to three ounces of silver spread across various components.

The lack of transparent demand data creates a market inefficiency that delays price discovery. With major consumers keeping their requirements confidential and industry associations struggling to compile accurate statistics, silver's true supply-demand balance remains partially hidden from market participants.

Banking & Market Dynamics

The structure of the silver market itself presents another layer of complexity for investors to understand. Unlike many commodities, silver trading is dominated by paper contracts that far exceed the available physical metal.

Analysis suggests that every one ounce of physical metal sold into the marketplace, paper markets are short approximately 350 times that amount. This leverage creates vulnerability, as physical delivery requirements could theoretically overwhelm available supply.

The daily trading volume in paper silver markets far exceeds annual mine production. Approximately a billion ounces of silver trade in the paper market daily, while miners produce only about 830 million ounces annually. This disparity—240 billion ounces traded annually versus 830 million ounces produced—reveals the extreme disconnect between paper markets and physical reality.

Financial institutions manage this imbalance through sophisticated trading strategies designed to maintain orderly markets. Banks protect their positions at almost any cost, using their substantial resources to manage price movements.

MAG Silver's George Paspalas views this dynamic positively for producers:

"We're a silver company—75% of our revenue comes from silver, another 10% from gold. So, 85% precious. We're fully levered to the silver price. Exploration success on top of incredible margins and steady state performance at Juanicipio will mean great returns for shareholders."

These market dynamics were publicly displayed during the Reddit-driven silver squeeze in 2021, when silver rapidly moved from $18 to $30 per ounce. Financial institutions responded by issuing millions of paper contracts at the $30 level to halt the advance. Once retail buying pressure subsided, prices retreated as paper positions unwound.

The banking system's ability to manage silver prices through paper markets has been remarkably effective. However, this management relies on maintaining sufficient physical metal to satisfy delivery requirements when necessary. As physical demand continues to outpace production, this balancing act becomes increasingly precarious.

Retail Investor Insights & Predictions

Retail investor behavior plays a crucial role in silver market dynamics. Unlike industrial users who purchase based on production requirements, retail investors respond emotionally to price movements, creating feedback loops that can accelerate trends.

Retail silver demand is highly price-sensitive—sales increase dramatically during price rallies and contract during declines, similar to patterns seen in equity markets.

Financial institutions recognize the impact of retail sentiment and actively work to manage it. They view retail investors as unpredictable variables in their risk models. When retail investors begin accumulating physical silver en masse, it disrupts the carefully balanced paper market system. Financial institutions attempt to influence retail sentiment through media coverage and market commentary, seeking to maintain control over price movements.

Michael Konnert of Vizsla Silver notes that significant price increases would amplify already impressive economics:

"If silver goes to $40 or $50, that's going to be excellent for us, of course, because we're producing at an AISC of sub $9. So that's an incredible margin. But we don't need it to. We're going to be a very high margin producer at most silver prices."

Dan Dickson of Endeavour Silver adds:

"Silver often mirrors gold's movement and we expect this correlation to continue," suggesting that gold's strength should eventually translate to silver appreciation. He also notes potential operational benefits from currency fluctuations: "If we see further devaluation of the peso, obviously that benefits Endeavour from a cost standpoint."

The path to higher prices won't be smooth. In our view, every bull market is a grinding process. Silver needs to break through the $34-35 level to confirm a major breakout, with seasonal patterns potentially bringing weakness during the March-May period before stronger performance later in the year.

Company Profiles

Vizsla Silver Corp

Vizsla Silver is focused on advancing its flagship Panuco silver-gold project in Sinaloa, Mexico. The project encompasses over 7,000 hectares of highly prospective land in a historic mining district. Led by CEO Michael Konnert, Vizsla has rapidly expanded the project's resource through aggressive exploration. The company is advancing toward production with projected all-in sustaining costs below $9 per ounce of silver, positioning it as a potential high-margin producer. Vizsla Silver stands out in the sector for its combination of high grades, exploration upside, and clear path to production in a mining-friendly jurisdiction.

Why Investors Should Pay Attention: Vizsla represents a compelling growth story with near-term production potential and exceptional economics. Their sub-$9 AISC projections would place them among the lowest-cost producers in the industry, providing significant margin protection even at conservative silver prices. The company has consistently delivered exploration success, expanding both the resource size and grade. The valuation transition that Konnert highlighted—from 0.5x NAV as a developer to potentially 2x NAV as a producer—presents a clear catalyst for share price appreciation as they move toward production. With high-grade assets in a proven mining jurisdiction and a clear development pathway, Vizsla offers investors leveraged exposure to silver with multiple pathways to value creation regardless of short-term metal price movements.

Endeavour Silver Corp

‍Endeavour Silver, under the leadership of CEO Dan Dickson, operates two high-grade silver-gold mines in Mexico – Guanaceví in Durango and Bolañitos in Guanajuato. The company is also advancing the Terronera project in Jalisco toward development, which is expected to become its largest operation. With over 18 years of operating experience in Mexico, Endeavour has established expertise in exploration, mine development, and sustainable operations. The company benefits from its operating presence in Mexico, where peso fluctuations can positively impact production costs, enhancing margins during periods of currency weakness.

Why Investors Should Pay Attention: As an established producer with growth potential, Endeavour offers investors immediate exposure to silver production while positioning for significant output increases through the Terronera development. The company's operational expertise in Mexico is a crucial differentiator, having successfully navigated the regulatory environment for nearly two decades. Their existing production provides cash flow to fund development, reducing financing risk compared to pure explorers. Endeavour's cost structure benefits from peso fluctuations, creating natural margin expansion during periods of dollar strength. The advancing Terronera project represents a transformational asset that could substantially increase production scale and reduce overall costs, potentially triggering a market revaluation as it transitions from mid-tier to larger producer status.

Silvercorp Metals

Silvercorp Metals, led by Rui Feng, CEO and Chair, is a profitable Canadian mining company producing silver, lead, and zinc from multiple mines in China. The company operates the flagship Ying Mining District in Henan Province and the GC Mine in Guangdong Province. Silvercorp distinguishes itself with industry-leading low costs after by-product credits and a consistent track record of returning value to shareholders through dividends and share repurchases. The company recently expanded its portfolio through the strategic acquisition of Adventus Mining, diversifying its asset base beyond China and securing growth opportunities in Ecuador.

Why Investors Should Pay Attention: Silvercorp stands out for its exceptional profitability and capital return strategy in a sector not typically known for either attribute. With negative cash costs after by-product credits, the company generates strong free cash flow even during periods of silver price weakness. Their debt-free balance sheet and substantial cash position (over $160 million) provides both downside protection and optionality for growth through acquisitions. The Adventus acquisition represents a significant strategic expansion, adding the El Domo copper-gold project in Ecuador to their portfolio and reducing geographic concentration risk. This move demonstrates management's commitment to diversification and growth beyond their traditional Chinese operations. The company's consistent dividend program offers investors income alongside appreciation potential—a rarity among silver producers. For investors seeking exposure to silver with a value orientation and income component, Silvercorp represents a differentiated opportunity with proven operational execution and a newly expanded growth pipeline.

MAG Silver Corp

‍MAG Silver, under CEO George Paspalas, is focused on becoming a top-tier primary silver mining company. Its flagship Juanicipio project in Mexico's Fresnillo Silver Trend (44% owned, operated by Fresnillo plc) has reached commercial production, with approximately 75% of revenue derived from silver. Juanicipio is characterized by exceptionally high silver grades and low operating costs. With 85% of its revenue coming from precious metals, MAG provides investors with significant leverage to silver prices. The company continues exploration efforts to expand resources and extend mine life, complementing the steady-state production now underway at Juanicipio.

Why Investors Should Pay Attention: MAG Silver offers one of the purest exposures to silver price appreciation in the sector, with 85% of revenue coming from precious metals. The partnership with Fresnillo, the world's largest primary silver producer, reduces operational risk while allowing MAG to benefit from their partner's extensive regional expertise. Juanicipio stands out for its exceptional grades, which provide significant margin protection during price downturns and amplified returns during rallies. The project's recent achievement of commercial production de-risks the investment case while substantial exploration potential provides organic growth opportunities. With its strong balance sheet, tier-one asset quality, and significant leverage to silver prices, MAG represents an institutional-quality vehicle for silver exposure without the operational complexities of being a sole operator.

The Investment Thesis for Silver

• Persistent Structural Deficit: Five consecutive years of demand exceeding supply creates fundamental pressure for higher prices.
• Industrial Demand Growth: Expanding applications in electronics, renewable energy, and electrification ensure steady consumption increases.
• Monetary Premium Potential: With gold establishing new records, silver's historical monetary role positions it for catch-up performance.
• Limited Above-Ground Supply: Unlike gold, much silver is consumed industrially and not recycled, reducing available inventory.
• Extreme Paper-to-Physical Ratio: The 350:1 leverage in paper markets creates potential for dramatic price movement when physical demand stresses the system.
• Institutional Market Control: Banking interests actively manage price through paper contracts, temporarily suppressing prices below fundamentally justified levels.
• Price Target Potential: Industry experts project $40 silver by year-end, representing significant upside from current levels.

Silver presents a compelling investment case built on converging supply-demand fundamentals, market structure vulnerabilities, and relative undervaluation compared to gold. The metal's critical industrial applications ensure steady consumption growth, while production constraints limit supply expansion.

The current price disconnect—maintained through paper market mechanisms—cannot persist indefinitely as physical demand continues to outpace production. When this imbalance finally forces price discovery, the adjustment could be rapid and substantial.

For investors positioning ahead of this recognition, silver offers both inflation protection and growth potential that few other assets can match.

Konnert of Vizsla Silver highlights the valuation progression in the sector:

"It's about 0.4 to 0.5 times NAV in the development space on average in the silver sector. And then when you get into production, you can trade… even up to two times NAV."

This valuation expansion represents significant upside for companies transitioning from development to production.