The silver market has just delivered a masterclass in volatility, demonstrating how an asset considered a safe haven can transform into a high-speed thrill ride within days. A dramatic spike driven by Middle Eastern tensions was swiftly followed by an equally sharp retreat, leaving the metal to find a tentative footing at elevated levels. This new stability is being propped up by a softening US dollar and a lingering backdrop of global uncertainty.
A Structural Supply-Deficit Story
Beyond the headlines, silver’s long-term narrative is anchored in a persistent supply-demand imbalance. The market is entrenched in its fifth consecutive year of a structural deficit. From 2021 through 2026, the cumulative shortfall is projected to reach a staggering 820 million ounces.
Industrial demand provides a powerful underpinning, with the photovoltaic sector alone consuming over 230 million ounces annually. This industrial consumption underscores silver’s dual identity as both a monetary metal and a crucial component in the green energy transition.
On the supply side, constraints remain tight. Major producer Fresnillo recently revised its 2026 production target downward to a range of 42 to 46.5 million ounces, down from a prior forecast of 45 to 51 million ounces. This revision came despite a significant doubling in the price of silver, highlighting the challenges of ramping up output. The long lead times for new mines, typically between 7 and 15 years, further complicate supply responses.
Geopolitical Shockwaves Trigger Extreme Swings
The catalyst for the recent extreme price action was a significant escalation in the Middle East. A US-Israeli military operation against Iran, which resulted in the death of Supreme Leader Khamenei, subsequent Iranian missile strikes on Dubai, and the closure of the Strait of Hormuz, sent investors scrambling for precious metals.
Silver surged to over $96 per troy ounce, its highest level since late January. However, the risk premium built into the price proved fleeting. A sharp reversal in sentiment saw the metal plummet to $83.70 per ounce by Tuesday, marking a one-day drop of 7% after a nearly 5% decline the previous Monday. Essentially, the geopolitical shock was priced out of the market within a mere 48 hours.
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Dollar Dynamics and Policy Shadows
The subsequent recovery was aided by a shift in currency markets. Spot silver advanced 3.1% to $84.55 per ounce on Wednesday, following a session where it had lost more than 8%. Gains extended into Thursday, with prices hovering around $85 for a second consecutive positive session.
A key support was a weakening US dollar, which retreated after strong gains on Tuesday. A softer dollar makes dollar-denominated assets like silver less expensive for international buyers. Meanwhile, ongoing uncertainty surrounding the Iranian conflict continues to provide a floor for demand.
Adding to the short-term uncertainty mix is US trade policy. US Treasury Secretary Scott Bessent indicated that a proposed global tariff of 15%, announced by President Donald Trump, is expected to take effect later this week. Analysts note that such tariffs could incentivize moving metal back to New York, potentially tightening physical liquidity outside the United States.
The Volatility Outlook
With the conflict now in its sixth day, silver is likely to remain highly reactive. The metal typically exhibits greater volatility than gold during crises, amplified by its hybrid nature as both a haven asset and an industrial commodity. While fears of war can spur short-term investment demand, concurrent concerns about a potential recession can dampen industrial usage.
For context, silver reached a record high of $120 per troy ounce in late January. Looking ahead, J.P. Morgan Global Research forecasts an average price of $81 per ounce for 2026, a projection that remains contingent on several factors including the trajectory of global demand.
As long as markets are simultaneously processing geopolitical headlines, dollar fluctuations, and fears of both recession and conflict, volatility is set to remain the dominant theme. Consequently, silver is expected to continue trading with more turbulence than its peer, gold.
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