In Berkshire Hathaway's 2006 annual presentation, Warren Buffett was asked how he assessed the value of precious metals. Buffett replied that he had once made an enormous bet on silver, when global demand was outpacing supply by perhaps 100 million ounces a year. "Silver was out of balance," he concluded, to explain his 1997 purchase of 111 million ounces.
By acting on this supply and demand imbalance, Buffett made $97 million from his bet when he unloaded his silver in 2006. It was the second silver purchase of Buffett's career. In the 1960s, he bought silver as a way to play silver's demonetization by the U.S. government. Yet Buffett has disdained gold over the years, deriding it as a non-producing asset that "won't do anything... except look at you."
Why does Buffett view the two precious metals so differently? The answer has to do with specific uses for silver, which meet Buffett's criterion that investments must produce something like earnings and dividends or a bond yield (or, say, crops in the case of farmland).
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The most industrially useful metal?
Silver is the most electrically and thermally conductive metal on the periodic table, so it has immense industrial value. It's used in LED chips, medical devices, nuclear reactors, solar panels, semiconductors, touch screens, water purification, dentistry, photography, and batteries.
In fact, these industrial uses account for over 50% of global silver consumption. Revolutionary trends driving demand for them, from artificial intelligence (semiconductors) to the rise of renewables (solar panels, electric cars, nuclear reactors) helped push industrial demand for silver to 680.5 million ounces in 2024.
Gold also has a few industrial uses. Its non-reactivity with the human body makes it useful for some medical devices, and its resistance to corrosion makes it valuable in electronics. If you have an iPhone in your pocket, you also have about $2 worth of gold there. Even so, only about 11% of gold is used for industrial purposes, with the rest going toward jewelry or investment.
There's another huge difference between gold and silver, which Buffett touched on in a 2023 conference with investors. Noting that silver is mostly produced as a byproduct metal in mines for copper, zinc, gold, or lead, Buffett said that silver production is therefore not very responsive to price changes. Supply can't really be turned on like a tap. He said:
So there's been a gap, in recent years, of perhaps 150 million ounces, but none of these figures are precise, which has been filled by an inventory of bullion above ground, which may have been a billion ounces a few years back, but it's been depleted... We think that gap is wide enough that it will continue to deplete silver inventories to the point where a new price is needed to establish equilibrium.
The math behind today's silver boom
In the two years since, his words have proved prescient. As Buffett predicted, silver production barely budged in 2024, even as silver prices surged to a 12-year high. Globally, mines produced 819.7 million ounces, essentially unchanged from the 812.7 million ounces mined in 2023.
Yet industrial demand continued to grow, reaching 680.5 million ounces in 2024 as mentioned. That was up from 657.1 million ounces in 2023, which was up from the 592.3 million ounces in 2022. You can see silver's rise in the share price trajectory of the iShares Silver Trust (SLV 3.45%), a fund that buys and stores physical silver. It's up over 75% year to date.
NYSEMKT: SLV
Key Data Points
Overall, the world consumed 149 million more ounces of silver than it produced or recycled in 2024. This means that 2025 is set to be the fourth year in a row in which demand for silver handily outpaces supply. As Buffett noted in 2023, there are vast stores of silver bullion above ground to meet this imbalance for a while.
But that's depleting. The London Bullion Market Association has reached "critically low levels" of silver inventory, according to commodities strategist Daniel Ghali, and its 135-million-ounce stockpile could be depleted in just a few months. COMEX silver inventories are down 70% from their 2020 peak, while Bloomberg is reporting that India's largest precious metals company is sold out of silver for the first time in history.
Add it all up -- from the AI revolution's ravenous appetite for silver, to soaring demand from renewables, to falling interest rates and ongoing inflation making silver more attractive to investors -- and it's easy to envision silver's bull run continuing. It's this supply/demand imbalance, driven by silver's special status among industrial metals, that makes it uniquely worthy among precious metals as an investment, in Buffett's eyes.
