For Silver, a Hawkish Fed Overshadows a Growing Deficit—Until the Next PCE Report
29.06.2026 - 05:11:16 | boerse-global.de
Silver’s price slide deepened last week, with the metal shedding roughly 8.4% to trade at $59.69 an ounce. That puts it more than 50% below the record high struck in January. The rout has been relentless, driving the relative strength index to 34—deep into oversold territory—and leaving the spot price about 18% below its 200-day moving average.
The dominant force behind the selloff is the Federal Reserve. Chairman Kevin Warsh used the June 17 FOMC meeting to reaffirm his commitment to taming inflation. Nine of the 18 committee members now see at least one rate increase before year-end, while the market is pricing in three. The implied probability of a September move stands at 62%, and the CME FedWatch tool assigns an 88% chance to a December hike, up sharply from 61% before the meeting. Bank of America has issued the most aggressive forecast in its history: three quarter-point moves in September, October, and December, which would push the fed funds rate to 4.25%-4.50%. Deutsche Bank is calling for two.
That hawkish pivot is a stark reversal from late February, when expectations still leaned toward multiple rate cuts for 2026. The dollar has rallied on the shift, putting additional pressure on precious metals. Silver, in particular, suffers because more than half of its demand is industrial—solar panels, electric vehicles, AI data centers, and semiconductors. Tighter monetary policy damps growth expectations, directly undermining that consumption.
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Yet beneath the price action, the physical market tells a very different story. The Silver Institute projects a supply deficit of 46.3 million ounces for 2026, marking the sixth consecutive annual shortfall. Since 2021, cumulative deficits have drained roughly 762 million ounces from above-ground inventories. Unlike gold, most silver used in industry is never recovered—every solar module or EV battery permanently removes the metal from circulation.
Recycling hit a 12-year high, but even that record throughput cannot close the gap with mine output. The structural problem is that about 70% of global silver production comes as a byproduct of copper, zinc, and lead mining. Higher silver prices do not automatically trigger new mines, so the supply response is inherently sluggish.
Higher prices in previous years did cause one major shift: solar manufacturers cut their silver consumption by almost a fifth this year, substituting cheaper materials to reduce costs. That pullback might have eased the deficit, but it has been fully offset by a surge in private investment into physical coins and bars. On the paper side, however, ETF holdings dropped by more than 13 million ounces in a single month as institutional investors fled on rate fears. That divergence—strong physical buying versus heavy paper selling—has pushed the gold-silver ratio to 69.3:1, its highest since the early weeks of the US-Iran conflict.
The market’s schizophrenic state is reflected in the wide range of analyst forecasts. J.P. Morgan’s average 2026 estimate sits near $80 an ounce, but the low-end projection is $44 and the high-end $165. For now, the bears have the upper hand, and the single most important catalyst will be the June PCE report due at the end of July. Headline PCE stood at 4.1% in May, matching expectations. Should the July data show a clear deceleration—helped by the Iran peace deal’s impact on energy prices—the rate-hike narrative could crumble quickly. At that point, the six-year supply deficit would take center stage again, and silver’s industrial demand story would likely overwhelm the monetary headwinds. Until then, the Fed remains the only game in town.
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