Silver Slumps Below $63 as Fed's Hawkish Tone and Dollar Strength Eclipse Deepening Supply Deficit

Silver tumbles 4% to trade below $63 as hawkish Fed repricing and strong dollar hit precious metals; supply deficit offers shaky floor, PCE in focus.

The white metal extended its losses on Tuesday, sliding more than 4% to trade under $63 an ounce as a resurgent dollar and rising Treasury yields heaped pressure on the precious metals complex. The sell-off deepened a rout triggered by last week’s Federal Reserve meeting, during which Chairman Kevin Warsh signaled a markedly more aggressive tightening path than markets had anticipated.

Rate expectations shift sharply

The Bank of America swiftly revised its forecast, now penciling in three quarter-point rate increases for September, October and December — bringing the federal funds rate to a range of 4.25% to 4.50%. Deutsche Bank expects two moves totaling 50 basis points. The CME FedWatch tool reflects the market’s repricing: the probability of a December hike jumped to 88% from 61% before the FOMC gathering, while September odds stand at 72.8%.

Nine of 18 Fed participants see rates higher by end-2026; only one anticipates cuts. That hawkish tilt has pushed the dollar to a one-year high, making dollar-denominated commodities more expensive for overseas buyers and draining appetite for zero-yield assets like silver.

Silver bears the brunt of the shift

Silver had climbed above $71 ahead of Warsh’s first FOMC meeting but has since surrendered all those gains. During the policy week alone it dropped from $69.85 to $64, and the slide accelerated this week. Saxo Bank’s chief commodity strategist, Ole Hansen, noted that gold’s recovery proved short-lived while silver suffered disproportionately. Since the outbreak of the Iran conflict, the metal has shed more than 40% of its value.

The mechanism is indirect but powerful: geopolitical tensions fuel inflation, which in turn drives rate expectations higher. A stronger dollar then depresses metal prices. US inflation ran at 4.2% in May, the highest since early 2023, while core CPI held at 2.9%.

Supply deficit provides a shaky floor

Despite the price rout, the physical market remains tight. The Silver Institute projects a sixth consecutive annual supply deficit in 2026 of 46.3 million ounces. Demand from chip manufacturing — boosted by AI-related infrastructure — continues to grow, and when a brief ceasefire in the Iran conflict was reported in April, silver jumped 5% in a single session, suggesting the industrial demand story is merely dormant.

Yet that support is showing cracks. Solar manufacturers are quietly reducing the silver content per cell through more efficient coating techniques, a process known as “thrifting.” Even as global solar capacity expands, the metal intensity per panel is declining. New applications in AI data centers and power electronics for electric vehicles may partially offset that trend, but the net effect remains uncertain.

PCE report looms large

All eyes are now on Thursday’s personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge. A soft monthly reading of 0.2% or below would ease pressure, potentially allowing silver to reclaim lost ground. A hot print of 0.3% or higher would validate the hawkish rate path and keep the dollar elevated, pushing silver toward the next psychological support at $60. A break below that level risks triggering technical selling that could accelerate the decline.

For now, the metal’s fundamental story — six years of tightening supply — is being drowned out by macro headwinds. Thursday’s data will determine whether that story gets a chance to resurface or remains buried under a strengthening dollar.