Composite demand: why solar panels and silver coins compete for the same metal

Because both solar panels and silver coins compete with one another to use silver, they are competing for the same finite supply of silver available on the market.

Silver is one of the world's most important industrial metals and is currently in a tug-of-war between factory and investor markets that are both competing for the same limited supply of silver. In 2024, total industrial use of silver reached an all-time high of 680.5 million ounces, causing a 148.9 million-ounce deficit between production and consumption of silver for the fifth year in a row. This is an example of composite demand. Every ounce of silver purchased by one industrial user removes an ounce from the market available for purchase by another.

The rise of solar energy has significantly increased the demand for silver. The fastest-growing portion of silver use is for industrial purposes. Silver has the best conductivity of all metals and so has been used extensively in the manufacture of electrical equipment, including solar cells, wires and circuit boards. In 2024 alone, the photovoltaic industry used up nearly 198 million ounces of silver. This use of silver for solar energy is an example of derived demand—the demand for silver is driven, not by a consumer's desire for the metal, but by their desire for the finished goods made from silver. Governmental incentives for either solar installations or electric car fleets create a growing need for silver as a by-product regardless of whether or not the metal's price renders it a viable buy on an individual basis.

Limited Supply Cannot Change Quickly to Match Expanded Demand

Composite demand for silver is affected because supply cannot easily adjust to accommodate growth from both sectors of the industry. New sources of silver are added annually at a rate of approximately one to two percent due to geological constraints, and generally, silver is primarily found as a by-product of copper, lead, and zinc rather than being mined independently. Consequently, the scarcity issue compounds with the low elasticity of supply related to silver; in addition, there are time delays in increasing output even with significant price changes because opening a mine takes approximately ten years, so simultaneous increases in industrial and investment demand create deficits that are more accurately depicted as shortages rather than surpluses.

Industry versus Investment Demand

The second type of demand for silver comes from savings. Silver has historically been commodity money and is still sought out by those looking for a safe haven asset in times of market uncertainty. Much of this is physical bullion. A good example would be the Silver American Eagle, an iconic piece of American numismatic heritage. During times of elevated inflation fears, in 2021 the US Mint sold around 28.3 million Silver American Eagle coins. Every coin is potentially being purchased by investors, which means it never makes it into a production facility; therefore, the opportunity cost of holding non-yielding assets falls when real interest rates decline. This will increase the demand for coins and bars but create an environment where supply against demand will have to be balanced.

Price and Supply will Determine the Success of Composite Demand on Both Sides

Silver is traded for less than $60 an ounce as of July 2026; however, the gold-to-silver ratio is approximately 69, which means that for every one ounce of gold purchased, about sixty-nine ounces of silver could also be purchased, indicating silver is undervalued compared to gold and raises concerns that the price of silver will continue to rise. In forming an equilibrium price, manufacturers will be forced to find alternative sources of silver or reduce their scrap use, while simultaneously investors and miners will be rewarded for either holding or extracting silver by offering an opportunity to earn a return. Recent record deficits suggest that prices have not moved far enough to balance the needs of both the solar photovoltaic market and the investment market.