Silver Market Faces Imminent Supply Deficit, StoneX Report Indicates

A recent report by StoneX has reignited discussions surrounding the supply dynamics of silver, suggesting the white metal is poised to enter a significant deficit by the end of the year. Rhona O’Connell, Head of Market Analysis for StoneX in Europe and Asia, elaborated on the findings, stating that while silver is commonly perceived to be in a deficit, the definition requires closer scrutiny. “It is generally accepted that silver is a metal in deficit,” O’Connell remarked. “However, when excluding over-the-counter (OTC) investment activity, data reveals a different scenario with surplus postings.”

Economists and investors have long debated the supply deficit narrative of silver. O’Connell pointed out that, excluding OTC activities, silver’s supply has dwindled, positioning it for a bona fide deficit based on current projections. “Supply has been declining, and our projections indicate the metal will move into an actual deficit on that basis before the end of this year,” she explained, adding the situation is expected to “expand thereafter.”

StoneX’s findings further explore the behavior of silver during economic recessions, drawing parallels with copper—a less-valuable metal often mined alongside silver. “We have often noted that when gold is meandering in no particular direction, silver turns its attention to copper—both in terms of price action and, to a lesser extent, correlations,” stated O’Connell.

Her assertion is supported by a report from Heraeus, an authority in precious metals. Heraeus suggests the phenomena observed in recessionary periods persist today. It indicates that the decrease in copper production inherently affects silver output, potentially driving up its prices due to reduced availability. The report highlighted, “By-product silver supply could be constrained and other areas of silver supply are suffering, too,” noting Peru’s significant drop in silver production from 139 million ounces in 2017 to only 98 million ounces last year.

Phil Streible, Chief Market Strategist at Blue Line Futures, echoed these concerns while discussing the potential ripple effects of a distressed copper market. “If we continue to see deterioration in the copper market overnight, you should see silver prices track lower with it,” he predicted, although the demand from China could alter this trajectory as the country seeks to invigorate its property sector—a major consumer of commodities like copper, aluminum, and silver.