Silver Braces for Hawkish Fed Era as Beijing Summit and Supply Squeeze Offer Support

Kevin Warsh's Fed confirmation signals sustained high rates, hurting silver. India's import tax and supply deficit add pressure, while US-China summit may ease oil-driven inflation.

Kevin Warsh’s confirmation as Federal Reserve chair by the US Senate on 13 May marks a decisive shift in monetary policy that has already left deep scars on the silver market. When his nomination was first floated in late January, spot silver crashed 31.4% in a single session – its worst daily rout since March 1980. The white metal has since clawed back much of that ground, but the hawkish cloud remains. Warsh is a long-standing inflation hawk who questioned quantitative easing during his previous stint on the Fed’s Board of Governors, and his appointment reinforces expectations that interest rates will stay elevated for years.

That outlook was cemented by scorching US inflation data. Producer prices surged at their fastest clip since early 2022, while consumer inflation hit its highest level since May 2023. According to CME FedWatch, traders have priced out any rate cut this year and see a better-than-70% probability of a hike by April 2027. Morgan Stanley expects the Fed to hold steady all the way to 2027. A stronger dollar, a direct consequence of higher rates, makes silver more expensive for buyers outside the dollar zone and dampens global appetite.

Summit Diplomacy and the Hormuz Wild Card

Counterbalancing the Fed’s tightening bias is a two-day summit in Beijing between Chinese President Xi Jinping and US President Donald Trump. The talks – built on a temporary truce last autumn that suspended the toughest tariffs and export controls – cover trade, Taiwan, Iran, artificial intelligence and rare earths. For silver investors, the most critical topic is the Persian Gulf. Iran controls the Strait of Hormuz, through which roughly 20% of the world’s oil and gas trade flows. Soaring oil prices are already feeding into inflation; Brent crude recently hit nearly $107 a barrel. Any signal from Beijing that could de-escalate tensions around Hormuz would break the vicious cycle of higher energy costs, steeper inflation and even less room for the Fed to cut rates.

India’s Import Tax Bites

In a separate blow to demand, India jacked up its effective import duty on silver to 15% effective this week. New Delhi is trying to cool the country’s voracious appetite for the metal, protect its trade balance and shore up the struggling rupee. Industry experts expect Indian silver imports to slump by as much as 20% in the near term. The move comes just as the physical market is already stretched thin.

Deficit Deepens Despite Headwinds

That demand shock from Asia lands on a market that is heading for its sixth consecutive supply deficit in 2026. Analysts project a shortfall of roughly 46 million ounces, a 15% increase from the prior year. Since 2021, more than 760 million ounces have been drained from above-ground inventories, feeding an industrial hunger that shows no signs of abating. Manufacturers of high-efficiency solar cells are using more silver per panel, electric-vehicle production is guzzling material, and the build-out of AI data centres adds another layer of demand.

A note of caution, however, comes from the solar industry itself. Metals Focus reports that photovoltaic silver demand actually fell 6% in 2025 to about 187 million ounces, and they expect a further 19% decline in 2026 to roughly 151 million ounces. The assumption that solar demand always rises is being tested as cell makers find ways to reduce silver loading. This structural shift could cap one of silver’s most bullish narratives over the medium term.

Inflation Everywhere

Meanwhile, resurgent inflation is making hard assets more attractive as hedges. US inflation climbed to 3.8% in April, while Germany logged 2.9% – its highest reading since early 2024. The same energy-cost spiral that threatens to keep the Fed hawkish also pushes investors toward precious metals.

Price Action and Outlook

Despite these crosscurrents, silver has held its ground. On 13 May it settled at $87.88 an ounce, up 1.54% on the day, and a year-on-year comparison shows the price has nearly tripled. Earlier this week, the metal posted a 7% daily gain – its strongest single-session advance in months. The nominal all-time high of roughly $121, set in January, remains the bulls’ ultimate target.

For now, silver is caught between a hawkish Fed under new management and a physical deficit that offers a solid floor. The immediate catalyst will be the outcome of the Beijing summit, especially any concrete progress on the Hormuz front. A diplomatic breakthrough could ease oil prices, pull inflation off the boil and give silver room to extend its rebound. Without that, the metal will have to rely on its own tightening fundamentals to hold the line.