Silver – why the precious metal is suddenly outperforming even gold

• BNP Paribas Markets
  

You rarely see that. Silver, often disparagingly referred to as “the poor man’s gold”, has gained significantly more than gold since the beginning of June. With an increase of over eleven percent, silver has been able to draw attention to itself, while gold has only gained a good two percent in value (as of June 18, 2025). What exactly has led to silver suddenly doing so well is the subject of heated debate on the market, and there are probably several reasons.

On the one hand, there is the geopolitical situation, which is driving the price of silver. The escalation in the Middle East is causing investors to look for security, and precious metals traditionally benefit from this. Silver certainly has some catching up to do. After all, gold has already gained significantly more in the past twelve months, by 45%, while silver has only managed just over half that. The need to catch up with gold probably contributed significantly to silver’s outperformance in June, say observers.

Defense industry is becoming increasingly important for silver

But there is another reason that is driving the price of silver. Silver is not only a precious metal, but also an industrial raw material. Industrial use also exists for gold, but it plays a far greater role for silver. In recent years, the enormous increase in demand for silver from the electrical industry, particularly the solar and automotive industries, has been highlighted. However, there is a more hidden price driver for silver that many observers may not have had on their radar for a long time – this is the defense industry.

According to the Stockholm International Peace Research Institute (SIPRI), countries around the world will have spent the equivalent of around 2.7 trillion US dollars on their military in 2024 – more than ever before. However, developments in recent months in particular have clearly shown that The world is arming up. Admittedly: How much silver the arms industry consumes can only be estimated, because while civilian companies have to transparently disclose their production figures, the arms industry naturally operates in the shadows of secrecy, which is why exact figures remain under wraps. However, it is well known that the arms industry requires large quantities of silver for the production of modern weapons systems. It is estimated that a single Tomahawk cruise missile contains around 15 kilograms of silver, or almost 500 ounces, which gives a rough idea of the amount of silver consumed by the arms industry.

But why is silver so important for the defense industry? This is due to the physical properties of the precious metal, which are unique. Weapon systems make no compromises when it comes to the quality of the metal. Modern reconnaissance systems and drones, as well as radar systems and communication systems, are equipped with highly sensitive sensors. The components containing silver ensure precise data transmission, even under the most adverse conditions. Silver plays a key role in hypersonic missiles in particular. The extreme temperatures and speeds require materials with maximum conductivity and reliability. The world’s largest military powers are currently engaged in a veritable arms race to develop new weapons systems, which could drive up the military’s silver consumption.

Stagnating supply, but the market remains volatile

While demand for silver is therefore likely to increase in the coming years, supply has been stagnating for years. Silver is mainly obtained as a by-product (secondary product) in the extraction of other metals, while only a small proportion is systematically mined in primary mines. This makes it extremely difficult to systematically increase the supply of this increasingly important metal. Silver is therefore also interesting for investors. But beware, the development of the silver price is not a one-way street. Even if there is currently much to suggest a significantly higher silver price, the trend remains very volatile. The silver market is very tight, and a few large orders can have a significant impact on the market and therefore the price. There is also uncertainty regarding Donald Trump’s trade policy. The USA is one of the biggest consumers of silver, while at the same time the US president wants to reduce imports of silver from abroad through tariffs. It is uncertain how this will ultimately affect the silver price.

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