Silver to Extend 2024 Rally into 2025 as Physical Market Tightens & Demand Returns

• Silver prices surged over 30% in 2024, closely tracking gold's gains, despite less central bank demand than gold.
• Silver positioning remains modest with money managers' contracts and ETF holdings below historical averages, suggesting room for catch-up.
• Silver is viewed as significantly underpriced by Sprott CEO John Ciampaglia who sees potential to reach $50/oz over time.
• Rising delivery premiums on COMEX silver futures and global physical shortages point to intensifying investor demand for silver.

Silver emerged as one of the top performing commodities in 2024, posting an impressive 31.2% return and closely mirroring gold's 31.7% gain. While gold benefited from robust central bank buying, silver managed to deliver a comparable performance despite playing a less prominent role in official sector demand.

The strong showing from silver prices has sparked renewed investor interest in the potential opportunities in both the physical metal and silver mining equities going forward. Recent developments in the silver futures market and intensifying global competition to secure physical supplies further underscore the increasingly bullish outlook.

Silver Supply-Demand Fundamentals Improving

Metals Focus data highlights an attractive backdrop for silver prices based on the metal's evolving supply-demand dynamics in recent years. Silver mine supply has largely stagnated while demand continues to exhibit steady improvements. Sprott Asset Management CEO John Ciampaglia emphasized this point:

"If you take a step back, we think silver remains incredibly cheap. It's mind-boggling for us that silver is still below $30. It is way off its 2010 highs, and we would love to see it return to $50. We think it can be done over time."^[2]

Although these supply-demand trends may take time to exert a meaningful impact on prices, they represent an important fundamental driver that is likely to provide long-term support for the silver market. The constrained supply picture is being exacerbated by growing industrial silver consumption, particular in the solar energy sector.

"Institutional investors do not generally prefer silver as a portfolio hedge; it tends to be more speculative. Central banks don't buy silver because of the challenges of storing big dollar amounts. However, steady industrial applications have underpinned silver, mostly in the solar space. China is flooding the world right now with very cheap solar panels. It's fair to say there's overcapacity. They don't care if they're producing these things at very low margins, which consumes a lot of silver. We expect upwards of 20% of silver to go to PV's." - John Ciampaglia, CEO of Sprott Asset Management^[2]

Physical Demand Signals

Recent market action in the Silver futures markets provides another indicator of growing stress in the physical silver market. On January 9, 2025, the premium on the March 2025 silver futures contract on the COMEX exchange saw a nearly 50% jump relative to the spot silver price.

The COMEX futures allow traders to put on a silver delivery position in New York, so the rising premium suggests tightness emerging in the physical bar market as participants look to secure supply. David Jensen of Jensen Strategic notes:

"The break-out higher in silver futures prices vs. the spot price does signal anticipation of a higher future silver price by traders, as need grows in a physical market we will, ultimately, see a sustained inversion of this market structure as market participants bid the cash price of silver higher than the futures prices to take immediate delivery of metal."^[3]

While multiple short-term factors like potential U.S. tariffs may be contributing to the recent jump in futures, Jensen argues this is a global phenomenon reflecting the secular underproduction of physical silver after decades of price suppression with an intensifying scramble ahead:

"Given the estimated 4 billion (B) oz. to 6B oz. of cash/spot silver contracts standing in the City of London's cash market, as the market is seeing an increasing global shortage of silver it is anticipated the global scramble for physical silver is about to get much more intense."^[3]

Investor Positioning Leaves Room for Catch-Up

Despite silver's significant price appreciation to decade highs in October 2024, recent data suggests that there is still substantial room for further investor inflows. The latest Commitments of Traders (COT) report from the CFTC shows that money managers' positioning in silver futures contracts remains below the 10-year average.

This relatively modest exposure indicates that many institutional investors have not yet fully embraced the silver story. If the positive macro developments around monetary policy and geopolitical risks continue to drive safe haven demand, a shift in investor sentiment could quickly translate into impactful new capital entering the silver market and driving prices higher.

Hycroft Mining

Hycroft (NASDAQ:HYMC) reported exceptional drill results from its 2024 exploration program at its Hycroft Mine in Nevada. One hole (Hole H24D-6018) returned the highest grade intercept ever at the project with 21.2 meters grading 2,359.68 g/t silver. This extends the high-grade Brimstone zone and underscores the potential for further discovery as only a small portion of the district has been explored. As silver prices rise due to improving supply-demand fundamentals and investment demand, Hycroft is well positioned to benefit from both the metal's appreciation and the growth of its high-grade resources.

First Majestic Silver

First Majestic (TSX:FR) acquires Gatos Silver in a US$970M all-share deal that will establish it as a leading intermediate silver producer. The transaction provides enhanced production scale, consolidated ownership of the Cerro Los Gatos mine in Mexico, and an extensive 350,000 hectare land package for further exploration and discovery. This fits well with First Majestic's expertise in Mexican silver mining and should drive meaningful synergies. As the silver market outlook brightens, First Majestic is building an attractive portfolio of long-life, low-cost silver assets to generate growing cash flows.

Vizsla Silver

Vizsla (TSXV:VZLA) announced a 43% increase in M&I resources at its Panuco silver-gold project in Mexico to 222.4 Moz AgEq. The update includes a first-time Measured resource of 46 Moz grading 640 g/t AgEq, reflecting excellent continuity at the Copala deposit. With the resource focused on just 10% of the known vein strike, Panuco has ample room for further growth. Vizsla is advancing the asset on dual-tracks with ongoing drilling, engineering work, and an approved bulk sample/test mine. Against a constructive silver backdrop, Vizsla's aggressive approach to value creation makes it a compelling exploration and development story.

GoGold Resources

GoGold reported record quarterly production of 551,337 AgEq oz from its Parral tailings operation in Mexico, up 36% year-on-year. The addition of a zinc circuit and leaching optimizations drove increased gold and silver recoveries. With a healthy cash balance, GoGold is finalizing a feasibility study on its Los Ricos South project where it expects to make a positive construction decision in 2025. The company is hitting its stride as a multi-asset silver producer and developer, well timed for a stronger silver price environment.

Metalla Royalty

Metalla has rapidly assembled a diversified portfolio of gold and silver royalties and is now entering a cash flow harvesting phase. The company expects to roughly double production in 2025 as several assets come online, with visibility to reach 10,000 GEO by 2027. Metalla's portfolio stands out for its peer-leading 20-year reserve life, providing exposure to long-term precious metals cash flows. With larger royalty players consolidating, Metalla is well positioned as an emerging mid-tier consolidator. This combination of organic cash flow growth and acquisition upside makes Metalla an compelling royalty vehicle to gain leveraged silver exposure.

The Investment Thesis for Silver

Based on the analysis of the current silver market dynamics and investor sentiment, the key propositions for gaining portfolio exposure include:

• Allocate to physical silver bars and coins to benefit most directly from rising spot prices and premiums as physical shortages intensify globally. Consider storing in allocated and segregated vaults.
• Invest in physically backed silver ETFs like SLV, SIVR, or PSLV as an efficient way to track silver prices with daily liquidity and without personal storage requirements.
• Buy shares of silver mining stocks, particularly low-cost primary silver producers with high-quality assets in stable jurisdictions. As silver prices rise, producers should provide leveraged gains.
• Add silver as a core portfolio diversifier and alternative currency to hedge against central bank currency debasement and rising geopolitical risks. A small 5-10% allocation could provide meaningful protection.

In summary, silver's impressive performance in 2024 looks set to continue as a new uptrend takes hold driven by positive supply-demand fundamentals, persistent physical market tightness, and broadening investor interest.

Portfolio diversification through silver bars, coins, ETFs and mining equities can provide an attractive way to navigate the increasingly volatile macro environment and currency debasement unleashed by central banks. While the near-term price path may vacillate based on shifting macro factors, the strategic case for a core silver allocation continues to brighten.

_References:

1. _{Jun Rong, Y. (January 2025). IG Bank. 2025 Outlook: Silver's Path Forward After 2024 Gains}
2. _{Ciampaglia, J. (August 2024). Sprott Insights. On Underpriced Silver Catching Up to Gold}
3. _{Jensen, D. (January 2025). Jensen's Economic, Precious Metals, & Markets Newsletter. Jump In Silver Futures Delivery Premium Signals Acceleration Of Global Scramble To Secure Physical Silver}