Analysis: The silver rally is all about heat and is getting hotter

Silver’s historic rally was supposed to stop at $75. At least that’s what an obviously AI-generated video on X tried to convince me of while I was eating next-day trifle – the official breakfast dish of the Day of Goodwill. There was an apparent secret deal among institutional bankers to cap the price. By the time the video finished, the metal was trading at $79.

Read more: Loaded For Bear: With gold at $4,000/oz and platinum soaring, ‘there’s a vibe’ in SA mining

What we are witnessing is not just a speculative mania, but what analysts are calling a “structural repricing” of the metal. It is a collision between the thermodynamics of artificial intelligence and a financial system caught on the wrong side of a physical shortage.

All along the watchtower

For decades silver traded as a safe-haven asset tethered to interest rates. That logic has fractured. Silver is now trading as a critical industrial component for the “AI factory”.

The driver is simple physics. As data centres transition to processing large language models, the chips powering them are simply getting too hot for traditional soldering. The industry solution is silver sintering – using pastes of nanoscale silver particles that fuse at the atomic level.

This shift has created perfectly inelastic demand. The logic is brutal: the difference between using expensive silver versus cheap solder is irrelevant if the cheaper option risks a thermal failure, which is why Nvidia uses about 3g of silver in each of its H100 AI processors.

Tech giants cannot afford to let a multibillion-dollar data centre melt to save a few cents on metal.

At industrial scale

This is a story of the physical reality of the cloud – a massive industrial edifice constructed from specific geological inputs.

McKinsey’s Global Materials Perspective 2025 puts hard numbers to this buildout. It projects that global data centre capacity could expand by 2.7 times from 2025 to 2030.

While silver handles the heat, copper handles the power. The firm estimates that data centres alone could account for up to 3% of global copper demand by 2030.

This demand shock is hitting a market where supply is already constrained, contributing to what they call a “cyclical reset” where value pools are shifting away from traditional bulks like steel and coal towards energy-transition metals.

The thermodynamic squeeze

If the fundamentals are industrial, the price action is pure financial violence. The “finance bros” – hedge funds and speculators – who bet on a pullback have been caught in a classic short squeeze.

Historically, bullion banks and commercial hedgers maintain large net short positions to hedge physical dealings. But 2025 delivered a perfect storm.

According to market data, commercial traders are now short about 101,000 silver futures contracts – more than 500 million ounces. That’s a big bearish bet, even though silver prices have been rising.

What this means for you

If you are looking to trade this rally, remember that while AI’s thermal wall provides a floor for silver prices, the current price action is being driven by a squeeze. As McKinsey says: while the long-term demand for these materials is robust, the market is prone to cyclical resets. The fundamentals are real, but the velocity is irrational.

The issue is that the real, physical silver needed to support those paper bets is running out. London vaults, which are central to global silver trading, have lost about a third of their metal since 2022 and were down to just 27,187 tonnes by November 2025.

As China and the solar industry snapped up physical silver (solar panels also use silver in a big way), the available supply shrank. That left the traders who were short with no choice but to buy back their positions in a market where almost no one was selling. That scramble to cover pushed prices sharply higher.

Local reality check

While the world scrambles for metal, what is the state of the shop down here in South Africa? The latest PwC SA Mine 2025 report paints a picture of a sector that is resilient but constrained by logistics of getting ore to port.

Read more: Investment bankers step in to tackle N3 freight congestion

While South Africa doesn’t have primary silver mines, our gold sector is enjoying the party. PwC said in October that gold revenue surged 22% year-on-year to R132-billion, driven by record prices.

Meanwhile, the platinum group metals sector, after a brutal start to 2025 where revenue dipped 5%, is finally finding its footing and joining the dance party on the back of renewed demand in the AI and automotive sector.

The precious metal breakout to end 2025 should add renewed buoyancy to commodity-dominated markets to start next year on the up. DM