Silver’s Plunge to $64: A Hawkish Fed Debut and an Iran Accord Reshuffle the Precious?Metals Chessboard

Silver drops 5% to $64 as rate hike fears and Iran peace deal crush haven appeal, but supply deficits persist with record low inventories.

Silver has tumbled 5% in the past week, landing on the psychologically critical $64 mark as two powerful forces align against the metal. A new Federal Reserve chair has signalled that interest rates will stay higher for longer, while a surprise US?Iran peace accord has crushed energy?driven inflation expectations, robbing silver of its haven appeal. From a closing price of $68.91 on 18 June — itself a 1.5% daily bounce — the sell?off accelerated sharply after the central bank’s policy decision, leaving the metal with a month?to?date loss of roughly 6.5%.

The trigger was Kevin Warsh’s debut as Fed chair. The Federal Open Market Committee left the federal funds rate unchanged, but the hawkish surprise came in the updated projections. The median estimate for year?end 2026 was raised to 3.8%, and Warsh emphasised stubborn inflation during his first press conference. In a rising?rate environment, zero?yield assets such as silver quickly lose their lustre; investors stampeded out of the metal.

Compounding the monetary headwind was a dramatic geopolitical shift. The United States and Iran signed a preliminary peace accord, kick?starting a 60?day negotiation window. The immediate lifting of the blockade near the Strait of Hormuz sent West Texas Intermediate crude below $80 a barrel, slashing energy costs and, by extension, broader inflation forecasts. At the same time, the US dollar surged to its highest level since May 2025, making dollar?denominated silver pricier for international buyers. Both factors accelerated the unwinding of silver positions.

Yet the physical market tells a starkly different story. The Silver Institute expects a sixth consecutive annual supply deficit this year, estimated at around 46 million ounces. For 2026, market projections point to a shortfall of 67 million ounces — another year of consumption outstripping production. Global supply is forecast to edge up 1.5% to 1.05 billion ounces next year, the highest in a decade, while recycling is set to jump 7% and breach 200 million ounces for the first time since 2012. But because most silver is a by?product of copper, zinc and gold mining, higher prices do little to stimulate primary output.

The consequences of years of deficits are measurable. Since 2021, roughly 762 million ounces have been drawn from global inventories — about the equivalent of an entire year’s mine output. In London, the proportion of unencumbered silver in vaults hit a record low of 17% in September 2025, and a physical liquidity crunch in October of that year sent lease rates soaring.

On the demand side, the picture is shifting beneath the surface. Chinese solar giants Longi Green Energy, Jinko Solar and Shanghai Aiko Solar are aggressively substituting copper for silver in their photovoltaic cells. Longi plans to start mass production of the alternative design from the second quarter of 2026. The substitution remains technically tricky — high?temperature processes in TOPCon cells resist alternative metals — but analysts expect silver consumption in the solar segment could slump by as much as 19% this year. That drag is partly offset by a boom in industrial demand from data centres, artificial intelligence hardware and automotive electronics. Physical investment demand is forecast to climb 20% in 2026 to 227 million ounces, a three?year high, while jewellery and silverware demand is seen falling 9% and 17% respectively.

At the current gold?silver ratio of around 62, J.P. Morgan Global Research is sticking to a 2026 average price forecast of $81 an ounce — more than double the previous year’s average. Whether that call holds depends almost entirely on how aggressively the Fed tightens in the months ahead. For now, the $64 support level is the market’s first real test. If it fails, the sell?off could gain momentum; if it holds, the deepest structural deficit in years may eventually reassert itself.