Silver is meant to thrive on contradiction. A market facing its sixth consecutive annual deficit and a near-total blockade of the world’s most important oil chokepoint would normally send prices soaring. But on Thursday the white metal fell to around $63.95 an ounce — its lowest since March 23 and a drop of more than 26% over the past month. The disconnect between physical scarcity and paper price is not a market failing; it is the result of two unrelated forces combining to crush demand.
The immediate spark came from the Persian Gulf. US strikes on Iranian targets entered a second day, and Tehran responded by sealing off the Strait of Hormuz to oil tankers and commercial shipping. Any vessel attempting the passage, Iran warned, would be fired upon. The strait handles roughly a fifth of global oil trade and over a third of liquefied natural gas shipments. Energy prices surged — and with them, inflation.
US consumer price data for May confirmed the shock. Headline inflation hit 4.2% year on year, the highest reading since April 2023 and up from 3.8% in April. Energy costs alone accounted for more than 60% of the monthly increase. Core inflation, stripping out food and energy, rose only 0.2% month on month in May — down from 0.4% in April — which tempered the worst fears. But the headline figure was enough to rekindle speculation about the Federal Reserve’s next move. Markets now fully price in a quarter-point rate hike at the December meeting, with the next FOMC gathering on June 17 looming large.
Higher interest rates are the classical enemy of zero-yielding assets like silver. And no matter how acute the geopolitical tension, the logic of tighter monetary policy has overwhelmed the logic of crisis hedging. The result: investors have fled silver, pushing prices to levels not seen in three months.
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But the sell-off is not solely a macro story. On the demand side, a long-trusted driver is faltering. The photovoltaic industry, which had been a reliable growth engine for silver, is now actively reducing its consumption. According to Metals Focus, PV demand for silver dropped by 6% in 2025 to 186.6 million ounces, and a further 19% decline to roughly 151 million ounces is expected in 2026. The reason is straightforward: silver accounts for up to 29% of a solar module’s cost. Once prices climbed above $80 an ounce, manufacturers accelerated the search for cheaper alternatives. Longi Green Energy plans to replace silver with copper in mass production starting in the second quarter of 2026. Jinko Solar is preparing copper-based modules, and Shanghai Aiko Solar already offers silver-free cells. As a result, total industrial silver consumption fell by 3% to 657.4 million ounces last year — the first decline since the pandemic.
On the supply side, the fundamental picture remains tight. The Silver Institute projects a deficit of 46.3 million ounces for 2026, adding to cumulative shortfalls that have reached 820 million ounces since 2021. Inventories have been drawn down heavily: COMEX stocks slid from 531 million ounces in October 2025 to around 315 million ounces. And from next year, China will tighten silver export controls by requiring state licenses, effectively locking out smaller shippers and further narrowing available supply.
Yet these physical constraints have failed to prop up the price — and analysts see little relief until the macro headwind shifts. The LBMA consensus forecast for 2026 stands at an average of $79.57 per ounce, but the range is extraordinarily wide: from $42 to $165. Such a spread reflects the deep uncertainty facing the market. At the moment, the 50-day moving average is the key near-term gauge, and without a dovish signal from the Fed on June 17, the deficit is likely to provide a floor rather than a catalyst.
Thursday’s US producer price index will offer the next clue. If it comes in hot, pressure on silver is likely to persist, regardless of events in the Gulf. For all its structural scarcity, silver remains hostage to the tug-of-war between inflation, interest rates, and a solar industry that is rapidly rewriting the demand equation.
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