Silver’s Next Rally and Why Miners Could Outperform

October 20, 2026 | (6 mins 59 secs)

Proactive's Stephen Gunnion interviews Kenny Zhu on the forces shaping silver’s volatile price action, including monetary conditions, industrial demand and a sixth consecutive annual supply deficit. Zhu explains why growing demand from electronics, AI infrastructure and China’s manufacturing sector could continue to support the market. He outlines why Sprott favors silver miners, particularly primary producers, for their operating leverage, margin potential and comparatively attractive valuations.

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Video Transcript

What's Driving Silver's Pullback

Stephen Gunnion: Hello, you're watching Proactive. Kenny Zhu joins me. He's Director, Research and Investment Strategy at Sprott Asset Management. Kenny, good to speak with you. Silver has fallen sharply from its January record high. What's driving the pullback, and what does the recent price action tell us about the market?

Kenny Zhu: Most investors know silver has two drivers: monetary and industrial. Based on the data, the monetary side has clearly been in control over the past quarter.

If you think about silver's performance and the key triggers in the market, they've been rising real rates, inflation expectations and fiscal debt concerns. While rising real rates typically raise the opportunity cost of owning non-yielding assets like silver, they also signal that consumption remains relatively robust.

What matters is that U.S. AI spending continues to accelerate. That's led more companies to seek to build and source electronic components for data center builds from places like China. That's also been a big factor in Chinese demand because, when you think about where electronic components are produced, including transformers, batteries, and receivers, many of them have a silver component.

Additionally, my second point concerns last week's U.S. PPI and CPI inflation reports. Collectively, those signals pointed to stubborn inflation, raising the probability of an October rate hike, with at least one hike expected by year-end.

What's novel about this move last week is that, rather than interest rates jumping as we typically see over the past quarter, they declined. What we saw in silver and gold was a heartbeat in precious metals, which rallied from Wednesday through the end of the week.

We think last week's rally also reflected a return of silver's risk-hedging mechanism, as Fed hikes have already been priced in to some extent, while credit risks have begun to emerge in the AI space. CoreWeave's surging AI debt has triggered a broader market panic, sending its bonds plunging into distressed territory and fueling a massive flight to quality that pushed safe-haven assets like silver sharply higher.

We're not really making a market call on the trajectory currently, given the tremendous momentum underpinning AI; we think last week's price action illustrates silver's risk-hedging mechanism at work and is at least worth paying attention to for anyone seeking diversification.

Catalysts for the Next Silver Rally

Stephen Gunnion: What could trigger the next sustained rally in silver?

Kenny Zhu: To close the book on my previous note, anything that might impair the AI trade could disrupt the currency flows that have kept the U.S. dollar strong all year long. We'll likely gain more clarity as we proceed through the next corporate earnings season, but AI's impact on the economy is well known. Based on some of the estimates we've read, it's directly responsible for anywhere from a quarter to 1% of total U.S. GDP growth as it stands.

If you think about the tremendous driver AI spending has been for the U.S. economy, any weakness in tech-related earnings could bring down real interest rates and weaken the U.S. dollar's exceptionalism, both of which would, in turn, be bullish for precious metals like silver.

In terms of silver positioning, total known ETF flows have risen since August, despite ongoing price volatility. Those flows have remained fairly sticky. To us, that suggests investors may be increasingly seeking precious metals for diversification.

On the industrial side, another catalyst we see is the potential for electronics demand. The market may remain in a state of price discovery, but we see factors that suggest demand remains largely intact.

Silver markets are in their seventh year of deficit, and demand does not have to spike. We believe that any meaningful upside surprise to consumption could lead to an upward repricing in this segment, and Chinese demand has been experiencing relative strength on that front amid its export boom.

Silver inventories, for example, have largely restocked in the aftermath of last year's silver squeeze. Over that time, we've seen a premium in Shanghai silver pricing remain ongoing. That suggests continued strengthening of demand from Chinese physical industrial factors.

If you look at the latest economic data from China, it seems to support this figure as well: third-quarter GDP was up 4.5%, a slight uptick over Q2, and industrial production was up 5.5% in September, up from about 5.2% in August.

Those factors were primarily driven by rising exports, electronics demand (including AI-related equipment) and auto sales, each of which has a relative silver component.

The Case for Silver Miners

Stephen Gunnion: Kenny, for investors looking beyond the metal itself, why consider silver miners?

Kenny Zhu: We like silver miners over the physical at this time because if you think about the price, even at roughly $55 to $58 an ounce for silver, miners don't necessarily need a huge move in the price to improve their earnings, thanks to their broad operating leverage and margin expansion.

Looking at the fundamentals of this industry, you're seeing margins near decade highs, relatively restrained price multiples in this segment, suggesting that it's not currently significantly overvalued, and the leverage within the sector continues to fall, indicating healthier balance sheets.

History has shown that miners tend to provide leverage to the performance of the physical on sustained price trends. While there's been volatility, we think this supports a tilt towards miners over physical if you're looking for a value entry point. On top of that, the gold-silver ratio has been reverting toward its long-term historical average, suggesting that, at least for now, silver may be somewhat fairly valued relative to gold.

Finally, silver supply remains constrained. Roughly 70% to 75% of production comes as a byproduct of mining other metals, making supply relatively unresponsive to silver prices, while significant new mines remain scarce. If you think about the opportunity for the remaining 25% of miners, which are pure-play silver miners, they may be set up to outperform should we see a catalyst that swings the bullish trend back in silver's favor.

Stephen Gunnion: Kenny, thank you very much for your insights. Great speaking with you.

Kenny Zhu: It was a pleasure. Thank you.