Silver's Rally Hits a Sudden Wall

Silver's rally reversed on profit-taking, easing geopolitical fears, and a strong dollar. Despite volatility, a multi-year supply deficit underpins long-term price support.

The silver market experienced a sharp reversal this week, abruptly halting a rally that had pushed prices to a three-week high. After touching $91.30 per ounce on Wednesday, the metal's price tumbled, breaking decisively below the $87 threshold on Thursday. The sell-off was driven by a combination of profit-taking and shifting geopolitical winds.

Macroeconomic and Political Headwinds Converge

A key catalyst for the downturn emerged from reports suggesting potential progress in nuclear negotiations between the United States and Iran. This development, originating from Geneva, fostered hopes for diplomatic de-escalation, subsequently dampening immediate safe-haven demand for precious metals. Silver prices retreated approximately 4% from their weekly peak to $87.07.

Broader economic conditions added further pressure. Persistent U.S. core inflation, holding steady at 3%, reinforces the market view that the Federal Reserve will maintain its current interest rate stance for the foreseeable future. This scenario tends to bolster the U.S. dollar, increasing the relative cost of non-yielding assets like silver for holders of other currencies. Additional market hesitation stems from uncertainty surrounding future U.S. tariff policy under Section 122.

Structural Supply Deficit Provides a Long-Term Floor

Despite the day's volatility, the fundamental outlook for silver remains supported by a compelling supply-demand narrative. According to The Silver Institute, the market is poised for its sixth consecutive annual supply shortfall in 2026, with a projected deficit of 67 million ounces. Mine production is seeing minimal growth, while industrial consumption—fueled by adoption in artificial intelligence technologies and the automotive sector—continues to rise.

The metal's strategic profile is also being elevated. The U.S. government recently classified silver as a critical mineral. This move comes as China, estimated to control about 70% of global refined silver supply, has tightened export restrictions.

Market Outlook Hinges on Policy and Diplomacy

The path for silver prices from here appears heavily dependent on two factors: the concrete implementation of the new U.S. tariff strategy and the outcome of ongoing diplomatic efforts in the Middle East. Should geopolitical risk premiums continue to recede, the structural supply deficit is expected to re-emerge as the primary price driver. Analysts at J.P. Morgan anticipate an average price of $81 per ounce for the full calendar year of 2026.