Understanding Buffett's Historical Silver Position & Supply Deficit Thesis

This is a great question because people cite Buffett's silver purchase as "proof" that silver will moon, but they usually get the timeline and reasoning wrong.

The Historical Record

Between 1997 and 1998, Berkshire Hathaway accumulated approximately 129.7 million ounces of silver. At an average price of $4.50-$7.00/oz, this was a $585 million to $900 million position—massive for the time, representing about 37% of annual global silver mine production. By any measure, this was a serious, conviction-level bet.

Buffett publicly stated the thesis: the world faced a structural supply deficit in silver. Industrial demand was outpacing mine production year after year. Either prices had to rise to destroy demand or supply had to increase. This was his asymmetric setup.

Why He Bought

Buffett's research showed:

• Silver had been in physical deficit for multiple consecutive years
• Inventories (especially government stockpiles) were depleting
• Industrial users were dependent on silver (photography, electronics, etc.)
• The price-to-supply ratio was disconnected from fundamentals
• No speculative bubble existed (unlike late 1970s)

His stance was essentially: "This is mispriced relative to supply reality." He didn't buy it as inflation hedge or doomsday insurance—he bought it as an exploited arbitrage on supply fundamentals.

Why He Sold (Critical Part)

Here's what most people miss: Buffett sold his entire silver position by 2006, at prices that were only 2x-3x higher than his cost basis. Silver eventually went much higher (to $50 in 2011, briefly to $130 in 2021). Why did he exit?

Two main reasons: 1. Opportunity cost: Berkshire was running $100+ billion in capital. The 2.5x return over 8 years (~12% annualized) was acceptable but not spectacular. That capital could go to equity positions returning 15-20%+ or acquisitions returning 25%+. In Buffett's world, 12% is pedestrian.

2. The thesis changed: By 2005-2006, the deficit was narrowing. Higher prices were actually destroying demand (industrial users switched to substitutes or reduced consumption). More recycling activity came online. The structural imbalance he identified was resolving naturally.

What This Means Today (2026)

Here's the fascinating part: the supply deficit he identified in 1997 is now arguably 10x worse.

• 1997: Annual deficit maybe 50-100 million oz
• 2026: Annual deficit estimated 200-300 million oz (some analysts say 400+ million)
• Reason: Solar panel demand alone (30-40 million oz/year and growing) didn't exist in 1997
• Add EV batteries, medical devices, semiconductor manufacturing, IoT sensors
• Global stockpiles (government/exchange) are critically low

If the supply story was compelling enough to move Buffett in 1997, the 2026 story should theoretically be 10x more compelling. Yet he hasn't publicly bought. Why?

Buffett's Current Stance

As of his last public statements, Buffett holds no known significant silver position. There are a few explanations:

1. He finds better opportunities elsewhere: At his scale, even if silver goes 5x, the return on $1 billion might be less attractive than deploying it in tech stocks or acquiring entire companies.

2. He's skeptical of prices rising enough: Unlike 1997 when silver was $5, at $76/oz today, the risk/reward might feel less asymmetric to him. Doubling to $150 in 5-7 years is still good, but it's not the 5-10x move that excites him.

3. The index/fund approach: Berkshire has become more concentrated in fewer holdings (Apple, Bank of America, American Express). Maybe silver doesn't fit the profile anymore.

4. Liquidity concerns: Silver is less liquid than equities. Moving a $500 million position at current volumes is harder than it was in 1997 when daily volumes were smaller but the position was proportionally smaller.

The Contrarian Take

Some sophisticated investors argue: "If Buffett would buy today, he already would have. His non-action is a signal." Others counter: "Buffett's not a commodities trader—he builds businesses. Silver is a commodity play. Of course he wouldn't buy it now."

The supply deficit is real. Industrial demand is accelerating. But whether prices rise to $150, $300, or $500 depends on substitution, recycling efficiency, and macro conditions. Those aren't certainties.

Bottom Line

Buffett's 1997 purchase proves supply deficits matter and can drive prices. His exit at 2-3x shows he has a bar for returns that many retail investors don't. His current non-involvement suggests he either sees better opportunities or is skeptical that silver will move enough relative to risk. Use his historical thesis (supply matters) but don't over-interpret his current absence (he's not the only smart investor with a thesis anymore).