A mix of industrial demand, safe-haven buying, and persistent supply deficits has fuelled the rally. Silver’s growing use in electric vehicles, solar panels and electronics, coupled with disruptions at major copper mines where it is produced as a byproduct, has tightened supply.
The surge in prices has pushed silver exchange-traded funds of several fund houses to trade at premiums of up to 18% last week compared with their indicative net asset values (iNAVs), which reflect the actual value of the silver held in the fund. In simple terms, investors were paying more than what the underlying silver was officially worth due to supply constraints. Fund managers see room for further gains in the near to medium term, but warn that the metal’s volatility and dependence on industrial demand make it a tricky bet for investors chasing recent returns.
Dual drivers
Silver prices are being driven by two main factors: safe-haven demand and industrial use.
According to Vikram Dhawan, fund manager, commodities, Nippon Life India Asset Management, roughly two-third of silver demand comes from its industrial usage and one-third is for ornaments, small bars, coins or investment demand.
The metal tends to follow gold during periods of global uncertainty, thanks to its safe-haven appeal. At the same time, it benefits when industrial demand exceeds supply, giving it a unique dual role in the market.
“Silver demand has been rising significantly. Silver is a byproduct of of copper and zinc mining. If there is supply shortage or disruptions in such mines, it will also lead to silver shortage'” said Manav Modi, analyst, precious metal research, Motilal Oswal Financial Services.
“On the other hand, demand remains strong for silver as a use-case in electric vehicles, solar panels, green technology. Silver remains in deficit compared to the demand and this has been the fifth year of deficit,” he added.
Silver supply has been disrupted after two major copper mines—where silver is produced as a byproduct (only 30% of silver is sourced from silver mines; rest from copper, zinc and gold mines) —were forced to shut down following serious accidents. At the same time, demand is rising from sectors such as semiconductors, electronics, healthcare and telecom. Much of this demand is price-insensitive, meaning it does not drop even when prices rise.
“The demand for silver is inelastic, which means as the portion of silver used in goods such as solar panels or electric vehicles is minimal, a 20-30% increase in the price of the metal, is unlikely to substitute its demand. An EV uses approximately 50-60 grams of silver. Even if silver prices go up 30%, it’s unlikely that carmakers will stop using silver.”
Ghelani added that geopolitical tensions, tariff disputes, and ongoing conflicts in the Middle East and Europe have boosted silver’s risk premium, as the metal acts as a safe haven during times of global uncertainty. This premium is further supported by a tight supply situation in the global silver market.
“Supply remains tight since global silver mine production hasn’t grown much, which is positive for silver prices. Notably, less than 30% of silver comes from exclusive silver mines, while the rest comes as a byproduct of base metals and gold mining,” an Axis MF report mentions.
Another senior executive of a fund house noted that the current phase of uncertainty, combined with silver’s strategic importance, has prompted some central banks to bolster their silver reserves alongside gold.
“Saudi central bank and Russia have both initiated silver buying programmes,” he said. The US has also added silver to its critical minerals list, underscoring its strategic importance.
Caution amid the rally
Ghelani said unlike gold, silver is more volatile as it is influenced by multiple factors. So, if global tensions and uncertainty ease, silver may lose its risk premium as a safe haven. “If there is a slowdown in overall industrial activity, silver prices could see an impact.”
However, the supply situation may also improve. “With high prices of gold, silver and copper, supply will increase, and we expect the supply deficit to narrow in 2026,” the Axis MF report highlighted.
“If the demand-supply mismatch eases, there could be some correction in the prices. But till the major broad perspective remains intact with respect to safe-haven buying and supply challenges due to mining disruptions, silver could again rally after a temporary correction,” said Modi.
That said, if subsidies for green technologies are reduced in major markets, such as the US or China, it could pose a near-term headwind, Dhawan warned. “But fundamentally, silver remains a sound story. Investors should have at least a three-year horizon and focus on allocation rather than timing.”
However, not everyone is convinced about silver’s value as a portfolio diversifier. “Silver’s dual identity—part precious metal, part industrial commodity—makes it an interesting asset. However, long-term historical data suggests that over longer periods, silver doesn’t enhance returns meaningfully or offer a strong hedge,” said Arun Kumar, head, research, FundsIndia.
An analysis by FundsIndia showed that during global financial crisis, silver was up 9%, while gold was up 40%. During the Dotcom bubble when equity markets crashed, gold had given 3% returns, while silver had given negative 5% returns.
Surya Bhatia, financial adviser at Asset Managers, said, “Silver has gone through long stretches of underperformance in the past. After the 2011 peak, silver prices languished for nearly a decade, even as gold continued to do reasonably well.”
Silver as a tactical play
While silver offers both the drivers of industrial activity and safe-haven buying, it also makes it a tricky asset to allocate to.
If overall market sentiment turns negative, silver may offer some cushion—particularly if institutions and governments choose to add it to their reserves—but still gold would remain the first port of call for investors seeking safety in such conditions. At the same time, weak industrial activity may curb its demand.
On the other hand, silver tends to perform well in an environment like the current one—where supply is tight, demand remains resilient, even as global uncertainty continues. This makes it a useful tactical tool for investors willing to take measured exposure.
Investors should view silver as a tactical opportunity suited to specific phases of the market cycle, while continuing to rely on gold as a more reliable hedge for periods of heightened uncertainty.
If you are keen to add silver to complement your gold exposure, don’t go beyond 2–4% of your overall portfolio, within the overall gold-silver combined exposure of 10–12%.
Apart from silver ETFs and silver Fund of Funds, which invest in silver ETFs, you can also consider multi-asset funds that take exposure to both gold and silver, depending on the fund manager’s view. Choosing the right fund can help balance potential gains with the metal’s inherent volatility.