Silver Caught in a Paradox: Geopolitical Turmoil Drives Dollar Higher, Crushing Precious Metals

Silver drops below $74 amid geopolitical turmoil, as a stronger dollar and hawkish central banks outweigh supply deficits and safe-haven demand.

The Strait of Hormuz remains blocked, oil prices are surging, and the specter of stagflation haunts global markets. Yet silver is taking a beating. On Tuesday, the spot price tumbled more than three percent, sliding to around $73.26 per ounce and breaching key technical support levels. The metal now sits roughly 35 percent below its January peak of $116.63.

A Rejected Peace Offer Fuels the Dollar

The immediate trigger is the escalating US-Iran conflict. Iran, through Pakistani intermediaries, offered a ceasefire and proposed reopening the Strait of Hormuz. The condition: an end to the US naval blockade and security guarantees. Washington balked, with the White House reportedly viewing Tehran's demands as excessive. The US administration's stance has been wavering between de-escalation and military threats, creating a fog of uncertainty.

This has produced a paradoxical market dynamic. Crude oil is soaring—Brent briefly traded above $111 a barrel—as the International Energy Agency calls it the biggest supply disruption in history. But silver is suffering. The crisis is fueling inflation, which in turn strengthens the US dollar as a safe haven. A stronger dollar makes dollar-denominated precious metals more expensive for overseas buyers, suppressing demand. War-induced inflation also reinforces expectations that central banks will keep monetary policy tight, dampening appetite for non-yielding assets like silver.

Central Banks Add to the Headwinds

The Federal Reserve is front and center this week. The central bank is widely expected to hold rates steady at between 3.50 and 3.75 percent. With the OECD projecting US inflation at 4.2 percent this year due to the conflict, rate cuts look distant. High interest rates are a heavy burden for zero-yield assets like silver.

Adding to the uncertainty, Fed Chair Jerome Powell's term ends in May. Kevin Warsh has been nominated as his successor, and President Donald Trump has threatened to fire Powell if he doesn't step down voluntarily. This political wrangling is driving investors further into the dollar.

Across the Pacific, the Bank of Japan kept its key rate at 0.75 percent on Tuesday but raised its inflation forecast to 2.8 percent, signaling that easy money globally is becoming a thing of the past.

Industrial Demand Weakens, But the Deficit Persists

The selloff isn't coming from the fundamentals. The Silver Institute projects a structural supply deficit of 46.3 million ounces for 2026—the sixth consecutive year of shortfall. Investment demand for coins and bars rose 18 percent recently.

But the industrial sector, which accounts for the bulk of silver consumption, is struggling. Demand there slipped three percent to roughly 640 million ounces. The photovoltaic sector, long a powerhouse growth driver for silver, saw a dramatic 19 percent collapse.

Technical Picture Darkens

The charts have turned ugly. The 50-day moving average around $77 is well above the current price, and the relative strength index between 40 and 45 shows no upward momentum. The next support zones lie at $72.60 and near $70.

The gold-to-silver ratio, a measure of relative valuation, edged up slightly to 63 on Tuesday. That's a far cry from the extreme level of 105 in April last year, when silver was considered deeply undervalued. The white metal has since caught up significantly.

For now, silver is trapped between two opposing forces. In the near term, a strong dollar and high interest rates dominate trading. If the Strait of Hormuz remains blocked, stagflation fears will likely keep the dollar bid. But the structural supply deficit provides a long-term floor, ensuring that any significant downside is eventually met with buying interest.