Silver Holds Firm Above $87 as Sixth Straight Deficit Offsets India’s Import Tax and Fed Hawkishness

Silver trades near $87 despite India's 15% import duty and Fed rate hike expectations, supported by a widening supply deficit and robust industrial demand from solar, EV, and AI sectors.

Silver continues to defy gravity. Trading at nearly $87 an ounce, the metal sits roughly $51 above its year-ago level, despite having shed more than a quarter of its value since touching an all-time high of around $122 in January. Two powerful headwinds have materialised: India more than doubled its import duty on silver to 15% this week, and the market has all but written off any Federal Reserve rate cut for 2026, pricing in a 30% chance of a hike by December. Yet silver is not buckling. The reason lies in a structural supply deficit that shows no sign of easing.

New Delhi’s tariff shock took effect on Wednesday, raising the effective duty on silver from 6% to 15% in a bid to cool surging import demand that has strained India’s trade balance and weighed on the rupee. Analysts expect Indian silver imports to slump by as much as 20% in the near term. That is a meaningful demand loss from the world’s largest bullion consumer, but it arrives at a time when global inventories are already stretched to breaking point.

The silver market is on track for its sixth consecutive annual deficit in 2026, with the supply gap projected to widen to around 46 million ounces – a 15% increase from last year. Since 2021, more than 760 million ounces have been drained from above-ground stocks to feed an insatiable industrial appetite. Solar panel manufacturers, electric vehicle producers and the build-out of AI data centres are all gobbling up the metal, which derives roughly half its demand from industrial applications. J.P. Morgan forecasts an average price of $81 per ounce for 2026, more than double the average seen in 2025.

The macro backdrop is adding a further layer of support. Inflation is heating up again: US consumer prices rose 3.8% in April, while Germany reported its highest reading since early 2024 at 2.9%. The culprit is energy, with Brent crude surging to nearly $107 a barrel as the conflict in the Middle East blocks the Strait of Hormuz, removing millions of barrels from global supply daily. Higher transport and energy costs are fanning inflation, making precious metals an attractive hedge – even if rising rate expectations cap gold’s upside for now.

On the charts, silver flashed a strong buy signal on Monday with a single-day gain of 7%, its biggest rally in months. The metal’s dual character means it benefits both as a safe haven and as an industrial raw material, and the momentum is now spilling over into platinum and palladium, which are playing catch-up after a long period of relative underperformance.

For all the near-term noise from tariffs and central bank policy, the fundamentals argue that silver has a solid floor. J.P. Morgan sees the fourth-quarter average price at $5,055 for gold and $81 for silver, with both metals climbing further into 2027. The physical liquidity on the London silver market remains tight. If the Fed is eventually forced to reverse course – or if the geopolitical outlook deteriorates further – that dormant rate-cut fantasy could reignite quickly, blowing fresh wind into silver’s sails.