Silver's $75 Plunge: When a Hawkish Fed Overpowers a Record Supply Gap

Geopolitical shock drives silver to $75, down 34% from peak, as energy crisis fuels inflation and rate hikes, despite record physical deficits.

The Strait of Hormuz has done what no central bank could: it has broken silver’s inflation-hedge narrative. The precious metal tumbled below $76 an ounce on Monday, touching $75, as a geopolitical crisis in the Persian Gulf triggered an energy shock that is reshaping global monetary policy. The irony is stark—an event that should have sent investors scrambling for safe havens is instead driving them away.

Brent crude surged past $105 a barrel after Iran’s blockade of the world’s most critical oil chokepoint effectively shut down a route that previously handled one-fifth of global oil and gas shipments. Peace talks between Washington and Tehran collapsed after President Donald Trump cancelled a planned meeting in Islamabad, with Iran refusing to negotiate under the pressure of a naval blockade. The International Energy Agency has called this the largest supply disruption in history.

That energy shock is now feeding directly into inflation expectations. The International Monetary Fund has raised its global inflation forecast for 2026 to 4.4%, a level that forces central banks to keep interest rates elevated. For silver, which offers no yield, that is a death knell. Investors are rotating into income-generating assets, and the metal has shed roughly 17% since the crisis erupted.

The Federal Reserve’s decision on Wednesday will be pivotal. This is expected to be Jerome Powell’s last meeting before Kevin Warsh takes over in May, and markets see only a 21% probability of a rate cut this year, according to the FedWatch Tool. The European Central Bank has already tightened its stance, raising its inflation forecast while lowering growth expectations. A strengthening US dollar is compounding the selling pressure on dollar-priced commodities.

Yet beneath the surface of this macro-driven selloff, the physical market tells a completely different story. Silver is heading for its fifth consecutive annual deficit, with the supply gap projected at 46 million ounces this year alone. Global mine production has stagnated at around 800 million ounces annually, largely because silver is mostly a byproduct of base-metal mining. Industrial demand remains robust, driven by the buildout of AI infrastructure and power grids, while investment demand for coins and bars is expected to grow 18% this year.

There is a longer-term twist to the current crisis. The uncertainty over oil supply is accelerating global investment in solar energy, which is a major consumer of silver. That structural shift could eventually tighten the market further, even as short-term sentiment remains bearish.

The metal is now trading 34% below its January peak of nearly $122 an ounce. Analysts are cautious but not bearish. J.P. Morgan sees an average price of $81 this year, while Commerzbank forecasts a recovery to $90 by year-end. For that to happen, the market needs a new interest-rate regime—and that depends entirely on how the Fed navigates the collision between an energy-driven inflation spike and a slowing global economy.