Silver Slides on Iran Tensions Even as Sixth Consecutive Deficit Looms

Silver steadies around $62 after a sharp drop, as US-Iran tensions and rising rate hike bets weigh on sentiment. Fed minutes due later Wednesday.

Silver teetered around the $62 mark on Wednesday, paring some of the previous session’s losses as traders digested a fresh wave of geopolitical turmoil in the Middle East and waited for the release of the Federal Reserve’s June meeting minutes. The metal had touched a two-week high just a day earlier before dropping sharply on Tuesday.

The escalation between the United States and Iran triggered a broad repositioning across commodities. On the sidelines of the NATO summit in Ankara, President Trump declared an end to cooperation with Tehran, calling the June memorandum with Iran “completed.” Hours earlier, Iran’s Revolutionary Guards claimed responsibility for attacks on US military bases in Bahrain and Kuwait, retaliating against American strikes on Iran. The announcement sent crude oil surging more than 5% and reignited inflation fears that ripple directly into precious metals.

Silver fell to $60.95 on Tuesday, a decline of 1.79% from Monday’s close of $62.06, before stabilizing on Wednesday in a range between $61.36 and $62.42. The 52-week band of $35.95 to $121.66 underscores the extreme volatility the metal has endured over the past year.

Rate expectations tighten as inflation fears mount

The geopolitical shock is feeding into interest-rate expectations. Markets now price a 66% probability of a rate hike at the Fed’s September meeting, up from 62% on Tuesday and 60% on Monday. Higher rates raise the opportunity cost of holding non-yielding assets like silver, weighing on investor appetite. All eyes are on the Fed minutes due later Wednesday for further clues on the policy trajectory.

Just a week ago, weaker-than-expected US jobs data had given silver a tailwind as traders scaled back near-term tightening bets. That momentum has reversed amid the twin pressures of Middle East instability and persistent inflation concerns. Additional uncertainty came from an attack on two tankers in the Persian Gulf by unknown actors, along with Iran’s warning that it would suspend peace talks if Washington did not halt its war rhetoric.

The United States also lifted an exemption that had allowed Iran to sell crude oil on global markets. Shipowners are now avoiding the Strait of Hormuz, threatening further disruptions to global energy supply chains and adding to the inflationary headwind.

Structural deficit deepens even as industrial demand softens

Beneath the short-term noise, the silver market is grappling with a structural imbalance that shows no sign of easing. The Silver Institute reports that 2026 will mark the sixth consecutive year of supply deficit. While industrial processing demand is forecast to fall 2% to roughly 650 million ounces — a four-year low — the deficit is actually widening, reaching 46.3 million ounces.

The main drag on industrial consumption is the photovoltaic sector, where solar module manufacturers are cutting silver usage by about 19% to some 151 million ounces. Yet mine supply is contracting even faster, driven by the metal’s unique production profile.

Approximately three-quarters of global silver output comes as a byproduct of copper, lead and zinc mining. This means producers cannot rapidly ramp up supply in response to higher prices. When demand for base metals falls, silver output falls with it, regardless of the white metal’s own price signals.

Investment demand fills the gap

While industry retreats, investors are stepping in. Physical investment in silver is expected to jump 20% in 2026 to 227 million ounces — a three-year high, according to the Silver Institute. Western physical investment is recovering after three consecutive years of decline, supported by tight physical supply conditions in London, a volatile geopolitical backdrop and growing concerns over US political uncertainty and the independence of the Federal Reserve.

The contrasting trends highlight silver’s split personality: an industrial metal that relies on solar panels and electronics, and a monetary asset that thrives on uncertainty and falling real rates. For now, the latter is providing a floor, but the former is pulling the other direction.

What to watch next

The near-term path for silver hinges on two factors: the trajectory of the Iran-US confrontation and the tone of the Fed minutes. A further escalation in the Strait of Hormuz could amplify safe-haven demand, but also stoke the rate-hike expectations that undermine the metal’s appeal. The structural deficit, meanwhile, remains a slow-burning support that has so far failed to reverse the weekly decline. Traders will be watching to see whether the $60 level holds as a psychological floor or gives way to the broader risk-off mood.