Silver at a Crossroads: Supply Deficit Meets Hawkish Fed Bets as CPI Looms

Silver falls to $67.53 on strong US jobs data, dollar surge, and rate hike expectations; geopolitical calm reduces safe-haven demand, but supply deficit and industrial usage provide a floor ahead of CPI.

Silver is caught in a tug-of-war between its strongest industrial demand in years and a macro environment that grows more hostile by the day. The spot price slipped to $67.53 per ounce on Tuesday, its lowest since the end of March, as traders recalibrate their expectations for US monetary policy. The metal has shed its geopolitical risk premium after a US-brokered ceasefire between Iran and Israel, but the real pressure is coming from Washington.

Jobs Shock Reshapes the Rate Outlook

The US labour market added 172,000 new positions in May, more than double the 80,000 economists had anticipated. The dollar surged to a two-month high on the news, pushing the trade-weighted index to around 100. A stronger greenback makes dollar-denominated commodities like silver more expensive for buyers using other currencies, hitting demand squarely.

Bond markets have reacted sharply. According to the CME FedWatch Tool, the probability of a rate hike by December now exceeds 70%. Goldman Sachs has gone further, stating that it no longer expects any rate cuts in 2026, pointing to the resilience of economic growth. That is a grim backdrop for an asset that offers no yield.

Geopolitical Calm Erodes Safe-Haven Appeal

President Donald Trump mediated a preliminary truce between Iran and Israel, and a formal agreement could be reached within days, according to his statements. The risk of a blockade of the Strait of Hormuz has receded, easing the inflation fears that had been stoked by energy prices. Israel has halted airstrikes on Iran at Washington’s request, though military operations in Lebanon continue, leaving a residual uncertainty that is not enough to stem the selloff.

Silver has long been a dual-purpose asset: part industrial commodity, part safe haven. The fading of geopolitical anxiety removes one pillar of support, leaving the metal exposed to the macro headwinds.

Structural Supply Deficit Offers a Floor

Beneath the price weakness, the physical market tells a different story. The silver market is running a supply deficit for the sixth consecutive year, with this year’s gap estimated at up to 80 million ounces. Industrial appetite remains voracious: solar panels, electric vehicles, and new artificial-intelligence applications are absorbing record volumes of the metal.

Yet a potential long-term threat lurks. The Fraunhofer Institute has unveiled a technology that could cut the silver content in solar cells by as much as 90%. The method is not expected to be commercially viable for two to three years, but if it proves scalable, it would transform the demand structure in photovoltaics, one of silver’s largest industrial off-takers. For now, the deficit remains intact and provides a floor under prices.

Inflation Test Could Break the Range

All eyes are on Wednesday’s US consumer price index for May. Economists forecast a jump to 4.2% year-on-year, the steepest reading in nearly three years and a clear acceleration from April’s 3.8%. Such a result would cement expectations that the Federal Reserve will keep policy tight, and could push the dollar even higher.

Markets are cautious. Tim Waterer, market analyst at KCM Trade, notes that investors have adopted a wait-and-see stance. If inflation surprises to the upside, silver could break below the $67 handle and test the 52-week moving average near $61, a level that would bring the autumn 2025 lows into play.

For now, silver is caught in a narrow consolidation zone, with the short-term direction hinging on Wednesday’s data. The industrial case for the metal is as strong as ever, but macro forces are proving to be the dominant driver.