Silver's Physical Squeeze Meets a Hawkish Fed: Why the Metal Is Pulling in Two Directions

COMEX silver fell 1.9% to $63.76 as hot August inflation lifted 10-year Treasury yields above 5%, even as physical supply stays tight.

Rising Treasury yields and simmering geopolitical friction between Washington and Tehran have cooled investor appetite for precious metals, with silver caught squarely in the crossfire. The metal's fate in the near term hinges on a familiar tug-of-war: monetary policy on one side, and a physical market running short on supply on the other.

Ahead of the Federal Reserve's upcoming rate decision, jitters are building across trading desks. Because higher rates make fixed-income assets more attractive relative to commodities that carry no yield, bullion and its industrial cousins tend to come under selling pressure whenever the futures market sharpens its rate expectations. That dynamic has been on full display this week.

On Monday, the COMEX silver futures contract shed 1.9 percent to settle at 63.76 USD per troy ounce, extending a consolidation that has stretched over several sessions. Traders are steering clear of rate-sensitive positions before major central bank gatherings, and the prospect of tighter policy is casting a chill over the broader commodities complex.

Inflation Data Fuels the Hawkish Case

The trigger for the latest leg down came from US price data. Consumer prices rose 0.4 percent in August from the prior month, a reading that pushed the yield on benchmark ten-year Treasuries briefly above the five percent threshold. That level erodes the appeal of non-yielding metals in a hurry, and it has also handed the dollar a tailwind — the greenback climbed to a two-week high against a basket of peers, making silver more expensive for overseas buyers and further crimping demand.

Positioning at the futures exchanges reflects the same caution. According to TD Securities, trend-following funds have trimmed their net-long exposure to only a modest level. Dealers are also watching short-term support at 63 dollars, a floor that, if breached, could unleash another wave of selling.

China's Appetite Tells a Different Story

Strip away the macro noise, though, and the industrial picture looks considerably firmer. Chinese manufacturers loaded up on the metal in the first quarter of 2026, with March imports reaching 836 tonnes — far above the ten-year average of 306 tonnes. Beijing has added another wrinkle since January 2026, when it imposed export restrictions on silver, a move that threatens to tighten the pool of metal available for global trade and put further strain on physical supply.

Those supply-side pressures are feeding into a market that is on track for its sixth consecutive annual deficit. A worldwide shortfall of 46.3 million ounces is projected for full-year 2026. Private investors are adding to the squeeze: global demand for silver coins and bars is expected to climb 18 percent this year, according to media reports, which would mark the strongest reading since 2022.

The result is a market pulled in two directions at once. While fear of restrictive monetary policy keeps the futures tape in thrall to every move in the Treasury market, the persistent scarcity of physical metal offers the metal a durable floor. Until the Fed's intentions are made clear, nervousness across precious metals desks is likely to persist — and Washington's pronouncements will be parsed with intense scrutiny.