Silver Holds Ground as US Factory Boom at 55.3 Collides with Rate Fears and Supply Risks

Silver wavers as US manufacturing hits 2-year high, but input cost inflation and hawkish Fed rekindle rate fears; structural deficit faces demand cracks from India and solar.

Silver found itself pulled in opposing directions this week after the strongest reading for US manufacturing activity in over two years. S&P Global's industrial PMI surged to 55.3 in May, the highest since May 2022, while the composite index held steady at 51.7. For the white metal, widely used in electronics and energy equipment, such a rebound typically signals rising industrial demand. Yet the spot price remained tentative on Friday, following sharp gains in the preceding two sessions, as the same data package carried a sting: input cost inflation accelerated to its fastest pace since November 2022, and selling prices posted their sharpest increase since last August. That combination rekindled fears that the Federal Reserve will keep interest rates elevated for longer, eroding the appeal of non-yielding bullion.

Underpinning silver's longer-term case, however, is a persistent structural deficit. The market has posted a supply shortfall for six consecutive years, with cumulative draws from above-ground inventories exceeding 762 million ounces since 2021. Analysts expect another deficit in 2026, pegged in a range of 46 to 67 million ounces. But demand-side cracks are beginning to show. India, one of the world's largest silver buyers, has enacted new import restrictions on precious metals. Meanwhile, the photovoltaic industry — a key driver of silver consumption in recent years — is expected to reduce its purchases further in 2026, following an already subdued 2025. Both factors could narrow the anticipated shortfall, casting doubt on the deficit narrative's ability to fully offset near-term headwinds.

The sensitivity to interest rates was on full display earlier in the week. On May 20, the yield on the benchmark 10-year US Treasury dipped to around 4.57 percent on optimism over a potential Iran deal, giving silver a lift. The following day, however, yields bounced back and the metal came under renewed selling pressure. Adding to the macro anxiety, the April US consumer price index came in at 3.8 percent — above expectations — reinforcing skepticism that the Fed will cut rates soon. The hawkish tone was amplified by the central bank's latest meeting minutes, which flagged elevated inflation risks and left the door open to further tightening. A stronger US dollar, buoyed by these rate expectations, compounds the challenge for silver.

From a technical perspective, traders are watching a narrow decision zone. The critical band lies between $73.80 and $74.20 per ounce. As of an analysis from May 20, maintaining a foothold above $74.20 opens the door to targets at $76.12 and eventually $78.84. A slip under $73.80, on the other hand, would invite further selling pressure. The metal's ability to hold these levels will hinge on incoming US data and any shift in Fed guidance.

Across the Atlantic, the outlook is less encouraging. The eurozone composite PMI slid to 47.5 in May, down from 48.8 in April — the steepest contraction in two and a half years. While eurozone factory output held barely above expansion territory, new orders declined, and businesses reported building inventories amid rising costs and longer delivery times. This weakness dents hopes for a synchronized global industrial upswing that would bolster silver demand on a broad front.

Silver thus finds itself wedged between two powerful forces: a buoyant US industrial sector and a persistent supply deficit on one side, and inflation-driven rate anxiety, a stronger dollar, and a deteriorating European economy on the other. The near-term direction will be decided by whether the US manufacturing pickup proves genuine — driven by real demand — or whether the current spurt is merely a one-off inventory build that will fade once stockpiles are replenished. Until those conflicting signals resolve, the metal is likely to remain highly reactive to every inflation print and economic release.