Silver's 53% Plunge From January Peak Exposes a Fractured Market: Supply Deficit Meets Demand Collapse

Silver suffers 53% loss from January record as India's silver imports collapse 91% and Fed rate decision looms. Supply deficits overshadowed by demand weakness.

Silver closed last week at $56.22, carving out a 6.70% weekly loss that leaves the metal 53.84% below the January 29 record of $121.78. The sell-off has erased more than half of the year's spectacular rally, yet the market's fundamental narrative has fractured: a sixth consecutive annual supply deficit is being completely overshadowed by demand-side headwinds that show no signs of easing.

The rout accelerated as a sharp recovery in oil prices and shifting rate expectations drove investors out of precious metals, despite escalating tensions in the Middle East that would normally provide support. India's silver imports tell the most dramatic part of the demand story: they collapsed to just 46.8 tonnes in May from 534.3 tonnes a year earlier, according to the ?stanbul Ticaret Gazetesi. That 91% plunge removes a major pillar of physical buying, even as the global deficit is projected to widen 15% to 46.3 million ounces in 2026.

All eyes now turn to the Federal Reserve's July 28-29 meeting. Markets are pricing an 89% probability that the central bank holds rates at the current 3.50%-3.75% range, a view that received some support from June inflation data showing the headline rate falling to 3.5% from May's 4.2% — the first monthly decline since April 2020. Core inflation also moderated to 2.6% from 2.9%. Yet hawkish voices persist: Dallas Fed President Lorie Logan has called for a rate hike, and Vice Chair Philip Jefferson signaled willingness to tighten if inflation doesn't improve quickly. A hold would ease pressure from real yields, while a hike would prolong the pain.

Geopolitical dynamics are working against silver in an unusual way. Typically, tensions in the Middle East would lift precious metals, but the combination of a surging oil price, rising US Treasury yields, and a strengthening dollar has turned the relationship upside down. President Trump's declaration to Congress that the ceasefire is over and the US is back at war, coupled with threats from Iran's Revolutionary Guard to attack regional infrastructure and block Red Sea oil routes via Houthi allies, has only added to the uncertainty. The Strait of Hormuz remains critical, and further escalation could complicate the Fed's decision.

On the supply side, signals are mixed. COMEX inventories have recovered to 95.53 million ounces, the highest since August 2025, but that remains far from the September 2025 record of 201 million ounces. In China, the Shanghai silver premium remains elevated at 12%, indicating that industrial buyers are paying a significant markup over the COMEX spot price — a sign of persistent local tightness. Meanwhile, Chinese export licenses are restricting 60-70% of refined silver outflows, and a May 11 state of emergency decree in Peru has added uncertainty to mining output, while safety risks in Mexico continue to hamper production.

Industrial demand, which now accounts for roughly 60% of global silver consumption according to the Silver Institute, ties the metal closely to the economic cycle — and recent weakness in technology stocks and growth expectations has curbed risk appetite. Rumors of bank short positions totaling $891 billion requiring 400 billion ounces of physical delivery circulated last week, but such claims lack regulatory support; most silver derivatives are cash-settled, with less than 10% requiring physical delivery.

Technically, the relative strength index at 34.6 signals oversold conditions, while the 50-day moving average at $67.22 sits well above the current price, confirming a rapid short-term downtrend. The gold-silver ratio has widened to about 69-to-1, making silver historically cheap relative to gold. Traders are also watching US import prices, housing starts, industrial production, and the University of Michigan consumer sentiment survey this week, alongside the European Central Bank's rate decision on July 23. But the binary event remains the Fed's July 28-29 meeting — its outcome will determine whether this correction deepens or finally gives way to a stabilization rooted in an unyielding supply deficit.