The Silver Squeeze and the Silicon Squeeze: Twin Crises at the Heart of the AI Revolution

1.1A Market in Historic Deficit

The foundation of silver's dramatic repricing is a severe and persistent structural imbalance between supply and demand. The market is now in its fifth consecutive year of supply deficit, with the cumulative shortfall since 2021 approaching a staggering 800 million ounces, equivalent to nearly an entire year of global mine production.

This inventory depletion has led to extreme conditions in the physical market, with borrowing costs for silver spiking to as high as 200% annualised during periods of acute tightness. This is a clear signal that industrial users are willing to pay an enormous premium to secure immediate physical delivery.

1.2The Inelasticity of Silver Supply

Unlike many commodities, a high price for silver does not automatically trigger a significant increase in production. This is because an estimated 75-80% of all silver is produced as a byproduct of mining for other metals, primarily copper, lead, zinc, and gold.

1.3Geopolitical Leverage: China's Export Controls

The silver crisis escalated from a market imbalance to a geopolitical event with China's announcement of export restrictions on silver, effective January 1, 2026. While Mexico and Peru are larger miners of silver ore, China is one of the world's most important processors and refiners, controlling a significant portion of the refined silver that industrial users depend on.

"Once access to a critical input becomes conditional, planning breaks down quickly. The trust-based commodity systems that have underpinned globalisation for decades are straining as governments increasingly treat materials as strategic assets rather than freely traded goods."

Industry analysis [6]

The move has been widely interpreted as a countermeasure to Western restrictions on semiconductor technology. Elon Musk commented on the situation, posting on X that the restrictions were "not good" given silver's critical role in industrial processes.

1.4Silver's Irreplaceable Role in AI and Green Revolutions

With the highest electrical and thermal conductivity of any metal, silver is indispensable for efficiency and performance across multiple sectors:

This industrial demand is largely inelastic. As one analyst stated: "Manufacturers supplying solar panels or AI data centre servers absolutely need the physical silver." They cannot easily substitute it, and the cost of silver, even at record prices, is often a small fraction of the final product's value.

1.5The Price Surge and Future Outlook

Analysts believe the market has entered a new paradigm, with the old price ceiling of $50/oz now acting as a new floor. The combination of inelastic supply, relentless industrial demand, and a physical squeeze on inventories has created a perfect storm, transforming silver into one of the world's most critical and contested strategic resources.

2.1The Technical Root of the Crisis: HBM's Wafer Appetite

The memory shortage can be traced to a fundamental difference in manufacturing. HBM achieves its massive bandwidth by stacking multiple DRAM dies vertically, connecting them with microscopic through-silicon vias (TSVs). This complex, three-dimensional structure is incredibly inefficient from a manufacturing perspective.

With finite global wafer fabrication capacity, every wafer allocated to HBM for AI contracts is a wafer not available for DDR5 RAM needed for laptops, desktops, and servers.

2.2The Great Reallocation: Memory Makers Abandon Consumers

The world's three dominant memory manufacturers (SK Hynix, Samsung, and Micron) have made a clear strategic choice: prioritise the high-margin AI market. The "Project Stargate" deal between Microsoft/OpenAI and Samsung/SK Hynix alone is estimated to consume 35-40% of global DRAM wafer capacity.

2.3Nvidia's Pivot and the Death of the Affordable GPU

Nvidia is planning to cut production of consumer GeForce RTX 50-series GPUs by 30-40% in early 2026. The cuts will disproportionately affect mid-range cards (RTX 5060 Ti, 5070 Ti) that form the backbone of the PC gaming market.

There are rumours that the planned "RTX 50-series SUPER" refresh may be cancelled entirely due to memory shortages. The result is a death spiral for affordable high-performance gaming.

2.4The Colossus Effect: AI's Physical Footprint

The sheer scale of resources being consumed by AI infrastructure is difficult to comprehend. Two projects illustrate the magnitude of this demand:

These are not just data centres. They are AI factories, and they are a primary driver of the feedback loop between the silver and silicon crises. Project Stargate alone is estimated to consume 35-40% of global DRAM wafer capacity through dedicated monthly wafer starts with Samsung and SK Hynix.

These facilities require immense quantities of silver for power distribution and cooling, while their operation consumes a massive share of the world's HBM and GPU supply. The existence of just a few such projects fundamentally distorts global supply chains.

2.5The End of the PC as We Know It?

Major manufacturers like Dell and Lenovo have warned of impending price hikes of 15-30% across their product lines. Dell's COO Jeff Clarke stated he has "never seen memory-chip costs rise this fast."

The ultimate irony: the "AI PC" that was supposed to save the market requires a minimum of 16GB RAM, the very component that is becoming prohibitively expensive. The silicon squeeze is not just a supply chain issue; it is an existential threat to the democratisation of computing power.