Mexico, Peru and Chile—together accounting for 40.9% of global mine supply—each reported silver output below plan for reasons unrelated to price. Silver traded at $68.70 against gold at $4,587.10, leaving a gold-silver ratio of 66.8. The metal was up about 77% year on year, yet remained roughly 44% below its 29 January intraday high. In Mexico, Endeavour Silver’s Terronera mine in Jalisco was halted by an Ejido community blockade from 12–23 August, before resuming on 24 August, implying roughly 12 days of deferred production. Terronera processed 175,729 tonnes in Q2 at 126 grams per tonne, producing 608,347 ounces at 85.4% recovery, or around 6,685 ounces per day; the stoppage equates to about 0.08 million ounces. Terronera reached commercial production on 1 October 2025 and contributed 31% of Endeavour’s Q2 silver output; Mexico produced 172.9 million ounces in 2025, or 20.4% of the global total.

Peru’s statistics institute reported the metallic mining subsector fell 2.52% in June year on year, with silver down 9.0% while zinc fell 25.8%; lead dropped 12.5%, copper 4.7% and gold 1.1%. Peru produced 130.6 million ounces in 2025, or 15.4% of world supply, and at an average monthly run-rate of 10.88 million ounces, a 9.0% decline implies roughly 0.98 million ounces on a monthly-equivalent basis. In Chile, Antofagasta cut 2026 copper guidance to 625,000–655,000 tonnes from 650,000–700,000 after rain and snow at Los Pelambres; the midpoint cut was 5.2%, while the snowfall was put at around five million cubic metres. Antofagasta’s revenue mix was 77% copper, 10% molybdenum, 9% gold and 3% silver; half-year revenue rose 18% to $4,479.0 million, and net cash costs fell 8% to $1.22 a pound due to by-product credits.

The three events totalled about 1.1 million ounces, combining Peru’s 0.98 million monthly-equivalent change with Terronera’s 0.08 million, compared with a 46.3 million ounce deficit forecast for 2026 by Metals Focus and the Silver Institute. The World Silver Survey 2026 put primary silver mines at 26% of supply in 2025, with non-primary output at 625.5 million ounces, and mine supply was forecast at 844.1 million ounces this year versus 846.6 million ounces last year. Metals Focus and the Silver Institute said silver averaged $40.03 in 2025.

Silver Supply Deficits and Structural Price Drivers

We believe derivative traders should position for a sustained upward trend in silver over the coming weeks by focusing on long-call options and bull-call spreads. With silver trading at $68.70 against gold at $4,587.10, the gold-silver ratio sits at an appealing 66.8. This ratio historically points to silver catching up to gold’s momentum, especially given the chronic undersupply in the physical market.

We must recognize that higher silver prices will not trigger a sudden wave of new mining production to cool the market. Recent industry data shows that industrial demand, particularly from the solar photovoltaic sector which consumed a record 232 million ounces globally in recent years, continues to lock up available physical inventory. Because nearly three-quarters of silver is mined merely as a byproduct of copper, zinc, and gold, miners cannot easily ramp up production just because silver prices are soaring.

Trading Strategy and Market Positioning

The recent supply disruptions across Mexico, Peru, and Chile highlight how vulnerable the physical market is to non-price factors like local blockades and severe weather. In Peru, the ministry of energy and mines recently confirmed that polymetallic outputs continue to lag, directly squeezing the companion silver supply that derivative markets rely on. For traders, this means any short-term dips in futures contracts should be treated as highly attractive buying opportunities rather than a trend reversal.

We suggest utilizing options rather than outright futures to navigate the short-term volatility driven by these inelastic supply dynamics. Implied volatility in precious metals options has historically spiked during multi-year deficits, making premium-selling strategies like naked short calls incredibly risky. Instead, buying long-dated call options allows us to capture the inevitable price spikes when industrial buyers scramble for physical metal.

With the market facing a projected deficit of 46.3 million ounces this year—marking our sixth consecutive year of shortfalls—the structural floor for prices is exceptionally solid. We expect exchange-traded inventories to continue their downward slide as industrial users aggressively secure physical supply. Derivative traders who attempt to short this market risk getting caught in a massive, fundamentally driven squeeze.