Investment Conclusions and Positioning 1. Core Conclusions Over the next three to five years, silver is in a historic bull market with a structurally rising central value, supported by three main themes: The first is the shared backdrop of "order fragmentation + dollar order decline" with gold. The asset freeze following the Russia-Ukraine war, the weaponization of sanctions, and the snowballing fiscal deficit and debt have brought significant political and institutional risks to "holding dollar assets." The second is silver's unique industrial foundation. Data from the World Silver Institute shows that global industrial silver consumption reached 680.5 million ounces in 2024, a record high for the fourth consecutive year, accounting for approximately 60% of total demand. Growth mainly came from power grid infrastructure, vehicle electrification, photovoltaics, and AI-related electronic and IT terminals. The third is rigid supply and structural deficits. Silver mine production has hovered around 820-830 million ounces per year for the past decade, with supply mainly coming from byproducts of other metal mines, making it very insensitive to price fluctuations. A global silver survey indicates that the market has experienced a structural supply-demand deficit for four consecutive years since 2021, with a shortfall of approximately 148.9 million ounces in 2024. In this context, silver's positioning can be summarized as follows: • From a macroeconomic and order perspective, it aligns with gold, absorbing demand for hedging against the dollar's credit discount. • From a real economy perspective, it is deeply intertwined with electrification and digital infrastructure represented by AI/data centers. • From a supply-demand structure perspective, it suffers from long-term supply rigidity and consecutive deficits, with prices primarily regulated through inventory and rationing. In the baseline scenario, silver's long-term trend moves in the same direction as gold, with silver typically delivering larger percentage gains during upward phases; for example, in the past six months, silver's gains have far exceeded those of gold. Of course, corrections are also more severe, exhibiting a very pronounced high beta characteristic. As shown in Figure 1, the silver price increased approximately 37 times during the bull market of the 1970s, approximately 13 times during the bull market of 1991-2011, and approximately 9 times since the current bull market started from the low of $11.65 in 2020. Since the price has already broken through the high of $50 in the previous two bull markets, its potential for price appreciation is no less than the second bull market and may even surpass the first – if aligned with the first bull market, the silver price would reach approximately $500. Furthermore, silver bull markets typically last for decades (due to inelastic supply), therefore, a major bull market for silver is expected until at least 2030. Macroeconomic Environment: Real Interest Rates, the US Dollar Index, and Order Discount 1. Real Interest Rates: Discount Rate and Leverage Space The real interest rate, represented by 10-year TIPS, has two effects on gold and silver: First, the discount rate. The higher the real interest rate, the higher the opportunity cost of holding non-interest-bearing precious metals in theory.However, gold prices have repeatedly hit new highs in the past two years despite relatively high real interest rates, indicating that the interest rate line has been partially "covered" by central bank gold purchases and order risks. Gold prices lead the way, followed by silver prices, which then surpass them. Secondly, there's the leverage space. As real interest rates rise, financial institutions' funding costs and risk appetite tighten, forcing a reduction in leverage for precious metal ETFs and futures; as real interest rates fall, leverage space reopens. Silver, as a high-beta commodity, is particularly sensitive to this. Under a structure of high deficits and high debt, the US can hardly sustain high real interest rates for an extended period; otherwise, the fiscal interest burden would quickly spiral out of control, a point already elaborated in the gold report. The baseline scenario is: real interest rates can rise in stages, but the possibility of maintaining a high level for a long time is unlikely. 2. US Dollar Index: The chronic depreciation of the denominated currency. The US dollar index has broken below the 15-year upward channel maintained since 2011, signifying a reversal of the dollar's long-term strength. This trend aligns with the preceding macroeconomic narrative: • The US uses fiscal deficits and debt to fuel current growth. • Simultaneously, it packages sanctions, tariffs, and security protections as "order goods" and sells them to the world. • As a result, the order costs of dollar assets are rising, and the institutional risks of holding dollars are increasing. For silver, the impact of the dollar index has two paths: • Local currency costs for non-US buyers. When the DXY weakens, the pressure on silver prices in local currencies for major buyers like India, Southeast Asia, the Middle East, and Latin America eases, making it easier for industrial and physical demand to replenish inventories during pullbacks. • Relative attractiveness for asset allocation. When the market begins to doubt the "real return on holding dollar assets for ten years," officials will shift some weight to gold, while private individuals and institutions will use silver as a high-beta version of an allocation tool. 3. Order Discount: The Weakening of the Dollar's Role as a "Public Good" The dollar once simultaneously played three roles: • Global clearing currency • Standard for safe assets • "Public good token" of the US order. Now, all three roles are being discounted. Sanctions and asset freezes reduce the neutrality of clearing currencies, fiscal deficits and debt expansion depress the quality of safe-haven assets, and various "tariff-for-alignment" practices weaken the image of the US dollar as a public good. This section will not repeat the lengthy narrative of the gold section, but only retain the conclusion: the result of the order discount is that some demand that was originally willing to hold US dollars and US Treasury bonds unconditionally is gradually shifting to the side of gold and silver. Silver's dual identity: monetary metal and industrial metal.Monetary Attributes: A "Shadow Reserve" for the Private Sector Historically, silver, along with gold, formed a bimetallic standard. In the 19th century, many currencies were freely convertible to gold and silver at fixed exchange rates, leaving a deep-seated monetary attribute in collective memory. Modern central banks primarily hold gold and no longer hold large amounts of silver, but at the private and institutional levels, silver still plays several distinct roles: • For small and medium-sized investors, silver is a lower-threshold, more volatile "shadow gold." • For asset managers, silver is an important beta factor in precious metal portfolios. • In countries like the US, India, Germany, and Australia, silver bars and coins are used by households as long-term physical savings tools. These markets collectively contribute a large portion of global demand for silver bars and coins. During periods of heightened market risk, weakening real interest rates, and a weakening US dollar, this monetary attribute resonates with gold, but silver's price reaction is amplified. 2. Industrial Attributes: A Key Material for Electrification and Digital Infrastructure Industrial demand is the biggest structural difference between silver and gold. According to data from the World Silver Institute: • Global industrial silver consumption reached 680.5 million ounces in 2024, marking a new high for the fourth consecutive year. • Industrial silver consumption accounted for approximately 59% of total demand, making it the largest segment of silver demand. • Growth came from "green economy" related grid investment, vehicle electrification, photovoltaics, and AI-related electronics and IT end products. These industrial demands can be broken down into three main technological lines: • Photovoltaics (PV): Silver is the primary metal in the conductive paste for solar cells. Over the past decade, the proportion of silver used in PV has increased significantly in total demand, reaching a new high in 2024. Although the amount of silver used per watt has decreased with technological advancements, the growth rate of installed capacity is even faster, and total demand continues to rise. • Vehicle Electrification and Charging Infrastructure: The amount of silver used in relays, high-voltage contacts, sensing, and control systems of electric vehicles is several times higher than that of traditional gasoline vehicles. 5G, vehicle-to-everything (V2X) technology, and charging infrastructure will further increase demand. • Electronics & Electrical, Data Centers & AI: The official interpretation of the record-high industrial silver consumption in 2024 explicitly mentions that "end-user applications related to artificial intelligence" drove the growth in silver consumption for consumer electronics and IT equipment. The China Banking Association and subsequent research reports indicate that by 2030, photovoltaics, electric vehicles and their infrastructure, data centers, and AI applications will collectively boost industrial silver consumption. According to IEA research, the baseline scenario is that "global data center electricity consumption will approximately double to about 945 TWh by 2030," with AI-optimized data center electricity consumption expected to grow "more than fourfold" by 2030.In AI data center scenarios, visible silver usage includes: • Solder joints, connectors, and conductors in high-performance servers and switching equipment • Silver-based contact materials and silver-plated copper busbars in high-voltage power distribution and protection equipment • Silver-containing solutions in some high-end heat dissipation modules and thermal interface materials. The amount of silver used per unit is small; the entire AI infrastructure and data center construction is a "long-cycle project investment," lasting for many years once construction begins, creating a stable, incremental demand for silver over many years. McKinsey & Company predicts that demand for AI data centers will increase 3.5 times from 2025 to 2030. 3. Structural Summary: Gold's demand structure leans towards "official reserves + investment + jewelry," with a very small industrial share; silver's structure is closer to a dual core of "industry + investment," with jewelry and silverware as auxiliary components. The results are: • At the macro and order level, silver, along with gold, benefits from the decline of the dollar order. • At the industrial and technology investment level, silver further benefits from the electrification and AI dividends. • At the market behavior level, silver naturally becomes a "more elastic trading target under the same macro narrative." Supply Structure: By-product Dominance and Structural Deficit 1. Mineral Supply: By-products Limit Elasticity In other words, silver mine supply is almost a near-vertical supply curve in the short to medium term, with prices adjusted more through inventory depletion and physical rationing. Data from the World Silver Survey and USGS shows: • Global silver mine production in 2024 is approximately 820–830 million ounces, peaking in 2015. • Over 70% of silver production comes from byproducts of lead, zinc, copper, and gold mines, with pure silver mines contributing only a small portion. This structure has several direct consequences: • Mine investment decisions are primarily driven by copper, zinc, and gold prices, showing little sensitivity to silver prices. • Even with significant silver price increases, it's difficult to see large-scale new capacity additions within a three- to five-year timeframe. • Even on the supply side, expanding silver production requires lengthy exploration, environmental impact assessment, and construction cycles for most projects. 2. Recycling and Above-Ground Inventory: Limited Braking Effect Silver recycling sources include old jewelry, silverware, photographic consumables, and electronic waste, amounting to approximately 150 million ounces annually in recent years. Compared to gold, silver has a lower unit value and higher dispersion, making recycling in electronic and photovoltaic components more difficult and lacking economic incentive for high-proportion recycling. Consequently, recycling has a limited "braking effect" on the supply side, making it difficult to rapidly release large amounts of recycled supply to suppress prices during periods of rising prices. 3. Structural Supply and Demand Deficit: Data compiled by the World Silver Institute and Visual Capitalist shows that the silver market has experienced a structural supply and demand deficit since 2021, with a deficit of approximately 148.9 million ounces in 2024, and an even larger gap in 2022.The deficit in 2024 marked the fourth consecutive year, and a deficit is projected for 2025 as well. Under this framework, any additional increase in industrial demand or amplified investment demand is easily reflected directly in the price and term structure, with the supply side lacking the ability to smooth prices through increased production. Three key differences relative to gold: 1. Higher beta and greater volatility. Under the same macroeconomic environment, silver's volatility is generally greater than gold's. As shown in Figure 11 (Gold and Silver Volatility Comparison Chart – Historical Realized Volatility Over 30 Trading Days), silver's volatility is significantly higher than gold's. In the current market rally since October 2023, gold prices reached new highs supported by narratives of order and central bank buying, while silver saw a larger increase due to record industrial demand, a supply-demand deficit, and an influx of investment funds, with its cumulative increase in 2025 significantly outpacing gold. This amplification effect holds true in both directions: • In a bullish environment, silver typically outperforms gold. • When interest rates, the dollar, or liquidity tighten, silver's pullbacks are also more likely to be deeper than gold's. 2. Sensitivity to Real Investment and Technological Paths Gold is primarily sensitive to interest rates, exchange rates, and order risks, with a lower correlation to real investment. Silver prices are also sensitive to the following: • Interest rates and the dollar's path • Photovoltaics and electric vehicles • Power grids and energy storage • Data centers and AI clusters When interest rates and the dollar weaken, and electrification and AI investment are strong, silver will significantly outperform gold under the dual support of "macroeconomics + industry"; when interest rates and the dollar are both strong, and electrification and AI caps slow down, silver's performance relative to gold will be significantly discounted. 3. Liquidity and Structural Risks The silver market size and liquidity are lower than gold. Calculated by above-ground stock, gold is approximately $36.1 trillion, while silver is approximately $2.14 trillion, making gold about 16.85 times larger than silver. Consistent structural deficits and limited inventories make silver more susceptible to short squeezes, margin calls, and temporary decoupling between futures and spot prices during extreme market conditions. In other words, silver amplifies both the potential gains and risks under the same macroeconomic narrative.