Trade Talks and Tariffs Tangle Silver as Supply Scarcity Offers Ballast

Silver is navigating a treacherous week, caught between a trade-summit rally and a fresh wave of demand-side headwinds. After a sharp 6.15% surge on Monday to $85.36 an ounce — helped by optimism ahead of the Trump-Xi meeting in Beijing — the metal quickly surrendered those gains, slipping back under $85 on Tuesday before rebounding to around $87. The whipsaw action reflects a market torn between industrial tailwinds and monetary tightening fears.

India Doubles Down on Duties

A major new barrier to demand emerged from New Delhi this week. India, the world’s largest silver importer, raised import duties to an effective rate of 15% as of May 13. The base tariff jumps from 5% to 10%, while the existing Agriculture Infrastructure and Development Cess of 5% remains unchanged. Previously, the total effective levy stood at just 6%.

The move comes as India’s silver imports surged 44% in 2025 to $9.2 billion, straining the rupee and foreign-exchange reserves amid rising energy costs linked to the Iran conflict. Industry insiders warn the tariff hike could stifle near-term purchases and, paradoxically, reignite smuggling — a practice that had subsided after India cut duties in mid-2024.

Solar Sector Slows Down

Adding to the industrial-demand drag, the photovoltaic industry — a key silver consumer — is pulling back. Metal Focus projects that solar-panel manufacturers will order roughly 151 million ounces of silver in 2026, down sharply from an estimated 186 million ounces this year. High raw-material costs and lingering economic uncertainty are prompting companies to tighten budgets.

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Industrial applications typically account for more than half of global silver demand, so cooling in the solar segment is a meaningful headwind. The latest data underscores that while trade détente between Washington and Beijing could boost broader manufacturing, the near-term outlook for the metal’s biggest industrial buyer remains subdued.

Inflation and Rate Fears Dominate the Monetary Side

The greatest pressure on silver’s investment appeal continues to come from the Federal Reserve. US inflation accelerated to 3.8% in April — the highest since May 2023 — with core inflation at 2.8%, both above forecasts. Markets now price in a more than 70% probability of a rate hike by April 2027; cuts this year are considered off the table.

Compounding the outlook, Fed Chair Jerome Powell’s term ends today, and the Senate is set to vote this week on Kevin Warsh as Trump’s nominee to succeed him. Warsh is seen as favoring lower interest rates, adding another layer of uncertainty to monetary policy. Meanwhile, the ongoing blockade of the Strait of Hormuz is lifting oil prices, inflaming inflation fears and further dimming hopes for an early easing cycle. Higher rates hit silver especially hard — the metal yields no income, becoming less attractive to investors seeking yield.

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Supply Deficit Holds the Floor

Despite the bearish forces, silver has not collapsed. The physical market remains the bedrock: the Silver Institute forecasts a sixth consecutive annual supply deficit in 2026, with a shortfall of around 46 million ounces expected this year alone. That structural scarcity is preventing a deeper rout.

The gold-silver ratio, currently at roughly 58, has compressed from above 61 six weeks ago. That compression signals that the metal’s recent price gains are being driven by industrial demand — tied to the trade cycle — rather than safe-haven buying. As long as the supply-deficit narrative persists, silver’s downside is likely capped, even as rate fears and tariff shocks keep volatility elevated. The outcome of the Trump-Xi summit will go a long way toward determining which force — industrial optimism or monetary headwinds — dictates the next leg of this fragile rally.

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