Silver’s Wild Ride: Geopolitical Headlines, Hawkish Fed Bets, and a Structural Squeeze Collide

Spot silver plunges to two-month low before recovering to $68.44. Iran-Israel tensions, a hot jobs report, and a structural supply deficit drive volatility.

Spot silver staged a dramatic intraday reversal on Monday, plunging to its lowest level in over two months before clawing back the losses. After slipping below the $67 per troy ounce threshold—a level not seen since early spring—the metal recovered to $68.44 by the close, posting a 0.9% gain for the session. The back-and-forth came in response to a rare confluence of geopolitical shock, dollar strength, and shifting interest rate expectations.

Iran-Israel Tensions Rattle Markets—But Not in the Usual Way

The catalyst arrived Sunday evening when Iran launched rockets at Israel for the first time since the April ceasefire. Israel reported intercepted projectiles and air-raid sirens across multiple regions. The escalation followed Israeli strikes in Lebanon, prompting President Donald Trump to call for restraint and later claim that final peace negotiations were underway.

Rather than triggering a classic flight-to-safety bid, the initial market reaction was deeply risk-off. Rising oil prices, a stronger dollar, and broad risk aversion dragged silver lower before reports of possible diplomatic talks turned sentiment around. By Tuesday, both sides had halted attacks but refused to rule out a resumption, keeping traders on edge. Adding to the uncertainty, Tehran’s threat to block oil tanker routes in the Red Sea looms as a potential supply-side shock if the conflict widens.

Jobs Data Ignites a Sharp Repricing of Rate Hikes

Simultaneously, the metal found itself squeezed by a blockbuster US jobs report. Non-farm payrolls added 172,000 positions in May, vastly exceeding the 85,000 that economists had forecast. The unemployment rate held steady at 4.3%.

The strength of the labor market has abruptly reset expectations for the Federal Reserve’s next move. Traders now see a much higher probability of a quarter-point rate increase at the December meeting—though exactly how high depends on which pricing model one looks at. One measure puts the odds at 43%, up from just 14% a month earlier, while another implied probability has surged to 70%, nearly double its level before the jobs release. The discrepancy underscores the uncertainty around the Fed’s path, but the direction is clear: rates are expected to head higher. A stronger dollar and higher yields erode the appeal of non-yielding assets like silver, and the metal is feeling the heat.

Structural Supply Deficit Offers a Floor

Beneath the macro noise, the silver market is running on a fundamentally tighter footing than the recent price action suggests. For the sixth consecutive year, the world is facing a structural supply deficit. Since 2021, according to the Silver Institute and Metals Focus, a cumulative 762 million ounces have been drawn from above-ground inventories.

The shortage is being driven by voracious industrial demand. By 2026, the solar panel and electronics sectors alone are expected to account for more than half of annual consumption. Supercharging this trend is the boom in AI data centers, a niche that is expanding at roughly 25% annually and adds 20 to 30 million ounces of new demand each year. On the supply side, there is little room for a quick response: approximately 70% of global silver production comes as a by-product of copper and lead mining, meaning output cannot be easily ramped up when prices rise.

Analysts See the Dip as Temporary

Despite the recent sell-off, many market participants remain bullish on the medium-term outlook. A Reuters consensus survey pegs the average silver price for 2026 at $79.50 per ounce, a view largely shared by J.P. Morgan. Citi offers an even more aggressive call, setting a second-half 2026 target of $110, betting that persistent physical tightness will eventually overwhelm macro headwinds.

That conviction will be tested in the coming days. Wednesday brings the US consumer price index, followed by the producer price index on Thursday. If both confirm that inflation is sticky, pressure on the Fed—and consequently on silver—is likely to intensify. The structural deficit may provide a floor, but it cannot shield the metal from a full-blown macro shock.