Silver vs. Gold: Which Precious Metal Has More Room to Surge?

At a glance: High industrial demand: About 50 to 60 percent of silver demand comes from industrial uses, such as solar panel production and electrical components, a factor that sets its price behavior apart from gold. Limited production growth: Most silver is a by-product of mining metals such as copper and gold. Therefore, even with a sharp increase […]

High industrial demand: about 50 to 60 percent of silver demand comes from industrial uses, such as the production of solar panels and electrical components; A factor that distinguishes its price behavior from gold.

Limitation of production increase: The major part of silver is a by-product of the extraction of metals such as copper and gold. Therefore, even with a sharp increase in the price of silver, its production does not necessarily increase.

Physical supply constraints: The amount of silver that is actually available for purchase and sale can become a significant bottleneck when demand increases.

Silver has distinct characteristics that make the impact of its price fluctuations on market supply and demand dynamics different from gold. However, when investors flock to silver in a big way, the limited physical supply of this gray metal can lead to very sharp and even explosive price jumps; An event that gold is unlikely to ever experience in the same way. This view was expressed by Kenny Zhu, director of research and investment strategy at Sprott.

In a recent interview with Kitco News, transcribed and translated by Ambassador Arjan, Zhu outlined three factors that make silver's price behavior significantly different from gold's.

The first factor is the strong role of industrial demand in the silver market. According to him, about 50 to 60 percent of silver demand is for industrial purposes; Therefore, the relationship between the price of silver and its supply is different from the relationship observed in the gold market.

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"Whether we like it or not, gold practically determines the overall trend of this part of the market," Zhou said. But in the case of silver, palladium and platinum, in addition to supply and demand factors, another factor called industrial demand also plays a role. "Gold is not as directly affected by such a factor as these metals."

He added: "About 40 to 50 percent of the demand for silver, like gold, has a monetary and investment aspect. But the other 50 to 60 percent is related to industrial uses; For example, companies and activists who buy silver to make solar panels, electrical components and similar products.

According to Zhu, industrial demand cycles are partly independent of the factors that drive monetary and investment demand. As a result, the reaction of the silver market to price changes is different and it can even be said that it is less flexible. This is one of the reasons why the behavior of silver is not the same as gold.

The second factor is the method of silver extraction. A significant part of silver production is obtained as a by-product of mining other metals. For this reason, an increase in the price of silver does not necessarily lead to an increase in its production.

Zhou said: "The majority of silver is still produced as a by-product of other mines. I might own a gold or copper mine. The nature of ores is that they contain a combination of different metals. When you process these materials, some silver is also obtained. "Silver is not the main source of mining income, but eventually you sell it and make a profit from selling it."

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"The problem is, if I decide how much copper to mine, that decision doesn't necessarily have anything to do with how much silver is in demand," he continued. Even if the price of silver rises sharply, copper will still be my main source of income. Therefore, I make production rate decisions based on copper market conditions; However, I also earn from selling silver."

According to Zhou, this shows that silver supply has a limited response to price increases; In other words, even if the price of silver grows explosively, mining companies will not necessarily increase their production and, in principle, may not be able to increase production quickly.

The third factor is the amount of silver that is actually available for purchase in the market. This concept, referred to as "free float", refers to the amount of physical silver available for purchase, not just the volume of silver that is traded on paper or in the form of financial contracts.

Zhou said, "When a significant price growth attracts investors' attention, the possibility of buying pressure and supply shortages increases; A situation similar to what we observed in the period leading to the almost parabolic jump in the price of silver, until January 2026. In my opinion, this factor can still be one of the structural features of this market."

He explained that when a wave of investor excitement is met with a limited supply of tradable silver, the impact on prices can be severe.

"An analyst who checks the market on a normal day may consider silver reserves to be sufficient," Zhou said. But when the upward trend of the price starts and accelerates, these restrictions can increase the intensity of the price movement.

According to him, the inflow of capital into exchange-traded funds (ETF), the increase of assets held in these funds and the acceleration of the upward price trend are factors that become more important in such a situation.

Zhou added in the end: "Last year we witnessed such a situation. "Inflow of capital can become an aggravating factor for price fluctuations."