One of the common reasons cited for the rally in silver has been the demand supply gap. After all, silver supply is a function of other metals from which it is derived, which limits the supply. However, if you look at the demand supply comparison; then silver has been undersupplied persistently since 2021, but the price rally started only in 2025. The demand supply gap has been ranging from 10% to 15% over the last 5 years, so not much has changed in 2025. One can argue that ETF demand for silver has been high in 2025, but at around 70 million ounces, it is about the same level as in 2024. 

If it is not actual demand, then is it demand expectations? In fact, the surge in demand expectations has been a key factor in driving the prices of silver higher. For example, some of the new age products like electrical vehicles (EVs), alternate energy, data centres etc have extensive applications for silver. These are the big growth areas and that is where the real demand alpha is going to come from. That has been a big factor. Also, if you look at the quantum of silver mined in 2025, it is actually lower than the quantum of silver mined in 2016. During the same period, the industrial demand for silver has grown by nearly 40%; turning it into an undersupplied metal. 

One of the unique features of a silver rally is that it has coincided with a gold rally. The general trend is that gold starts the rally and outperforms silver in the early part. Then silver emerges as the poor man’s gold and starts picking up pace. This trend was evident in 1979 and again in 2011. In 1979; the best year for precious metals, gold had rallied by 160% and silver had rallied by 415%. That still remains unbeaten. So, what actually drives silver is the gold-silver ratio. This ratio is normally in the range of 60-80. At the peak of the gold really in early 2025, the gold-silver ratio had crossed 100, and from there it has fallen to 57 levels. It is this ratio churn that drives silver prices. 

That is the million-dollar question. Remember, central banks do not hoard silver the way they hoard gold. Also, the AUM of silver ETFs globally is just $40 billion, against nearly $580 billion for gold ETFs. Hence, if traders or investors are looking at bulk investments in silver ETFs or buying silver futures; they need to be cautious. Like gold, even silver has the propensity to give up its entire rally on the way down and also witness persistent drawdowns for very long periods. The best way to approach silver is to have a 15%-20% allocation to precious metals and allocate that basket largely to gold ETFs and to a small extent to silver ETFs. That would be a better approach!