Silver’s Supply-Deficit Safety Net Wobbles as Inflation Hawks Seize Control

Silver slides below $76 as US inflation data ends rate cut hopes, pricing in a December hike. Despite persistent supply deficit, industrial demand weakens, gold-silver ratio surges.

Silver is caught in an unusually sharp tug-of-war. On one side, a structural supply deficit that has persisted for five years and is expected to widen further. On the other, a sudden repricing of US monetary policy that has crushed the metal’s rate-sensitive appeal. The result: a third consecutive losing session on Monday, with the spot price hovering below $76 an ounce.

The trigger was last week’s US inflation data. The April consumer price index rose 3.8% year-on-year, topping forecasts, while producer prices posted their sharpest monthly gain since early 2022. That combination has effectively killed any lingering hope of a Federal Reserve rate cut in the foreseeable future. According to the CME FedWatch tool, markets now assign virtually zero probability to a cut in 2026.

Worse for silver, the market has begun pricing in a rate hike for December, with odds hovering around 50%. Higher real interest rates are particularly punishing for precious metals that generate no income, and the dollar’s renewed strength has only added to the drag.

The strain shows up clearly in the gold-silver ratio. That metric surged to 58.9-to-1 on the latest reading, a sharp jump from 53.6-to-1 just a day earlier, confirming that silver is being sold off more aggressively than gold. Silver’s dual identity as both a monetary metal and an industrial commodity typically works in its favour during rallies, but in stress periods that same mix can amplify losses.

Yet the fundamental picture remains far from comfortable for bulls. The Silver Institute expects a sixth consecutive annual deficit in 2026, estimated at roughly 46 million ounces. Cumulatively, the drawdowns since 2021 have consumed nearly 762 million ounces, while registered COMEX inventories have fallen sharply since October 2025 to around 315 million ounces. Supply response is inherently limited: about 70% of silver is produced as a by-product of other metals, so higher prices do not automatically translate into significantly more output.

Demand, however, is starting to show cracks. The photovoltaic industry, a major consumer, is reducing silver content per module, and PV demand is forecast to decline by about 19% in 2026. Jewellery and silverware consumption also softened, with jewellery off 9% and silverware down 17%. The electronics segment remains a pillar thanks to silver’s unmatched conductivity, but that alone cannot offset the weakening elsewhere.

Technically, the market looks unsettled. The Friday close of $77.55 per ounce left silver just above its 50-day moving average of $77.13, while the 100-day average sits well above at $82.73. The weekly loss of 10.71% knocks the wind out of the year-to-date gain, which still stands at 7.31%. A brief reprieve came on 11 May when a US-China tariff reduction announcement pushed the metal up 6% intraday, but the inflation data quickly overwhelmed that rally.

The price forecasts from major institutions reflect the uncertainty. J.P. Morgan sees silver around $81 an ounce, the Reuters median is at $79.50, ING forecasts $78, and the LBMA survey comes in at $79.57. All cluster near current levels but remain far below the January all-time high of $121.64, a level that now seems distant.

For now, the macro headwinds from inflation and Fed expectations dominate. The structural deficit and low inventories act more as a floor than a catalyst. Any shift toward a weaker dollar or lower real rates could quickly change the narrative, but until such signals emerge, silver’s near-term direction will be dictated by the next inflation prints and guidance from the US central bank.