Silver at a Crossroads: Weaker Core Inflation, Gulf Tensions, and a Six-Year Supply Deficit

Silver claws back from one-month low after cooler core PCE data weighs on the dollar, but geopolitical risks and falling solar demand cap gains amid widening market deficit.

Silver clawed back from a one-month low on Thursday after softer-than-expected core inflation data weighed on the dollar, but geopolitical jitters and a deteriorating industrial demand outlook kept the metal’s rally in check. The white metal settled near $72.30 in European trading — still under pressure from a stronger dollar earlier in the session — before the Bureau of Economic Analysis’ April PCE report triggered a reversal.

The core personal consumption expenditures index rose 0.2% month-on-month in April, down from 0.3% in March, while the headline PCE price index climbed 3.8% from a year ago. For a non-yielding asset like silver, a slower pace of price increases reduces the urgency for further Federal Reserve tightening, easing real yields and dollar strength. That dynamic played out immediately after the release, helping silver recover from the day’s earlier slump.

Yet the macro picture remains clouded. The second estimate of first-quarter GDP came in at an annualized 1.6%, well below both the initial 2.0% reading and economists’ expectations for no revision. The Bureau of Economic Analysis cited weaker inventory investment and consumer spending, a combination that leaves growth momentum sputtering without a commensurate drop in bond yields — an uncomfortable setup for cyclical commodities.

Add to that rising tensions in the Persian Gulf. US forces launched new strikes against an Iranian target described by a US official as a threat to shipping in the Strait of Hormuz. Oil prices jumped, stoking inflation expectations. But higher energy costs can also push bond yields and the dollar higher, exerting headwinds on precious metals that carry no income stream. The net effect for silver remains ambiguous.

Meanwhile, the structural forces shaping the silver market are pulling in opposite directions. The photovoltaic sector, long the single largest industrial consumer, is shedding silver at an unprecedented pace. Silver paste accounts for 10–20% of total solar cell costs, and with overcapacity and falling module prices, manufacturers are substituting aggressively. The Silver Institute projects PV-related demand will drop 19% in 2026 to around 151 million ounces, following a 6% decline in 2025. Overall industrial offtake is expected to fall another 3% to 639.6 million ounces, as growth in AI data centers, automotive electronics and high-speed hardware fails to offset the solar retreat.

But on the investment side, the story is starkly different. Retail investors are piling into coins, bars and exchange-traded products at a pace not seen since 2022, with physical investment forecast to rise 18% this year. That surge is more than enough to overwhelm the industrial slide, pushing the market into a sixth consecutive annual deficit. The World Silver Survey 2026 puts the supply shortfall at 46.3 million ounces, widening from 40.3 million ounces in 2025.

The physical strain is visible in COMEX warehouse inventories, which have fallen from a peak of 531 million ounces in October 2025 to roughly 315 million ounces. In the first two months of 2026 alone, 95 million ounces flowed out of US vaults. Cumulative stock draws since 2021 have reached nearly 762 million ounces — equivalent to around nine months of global mine output.

With roughly 70% of silver produced as a by-product of gold, copper and zinc mining, supply cannot easily respond to price signals. The above-ground cushion is thinning. The next major catalyst will be the Federal Reserve’s reaction to a slowing economy with cooling core inflation but stubborn headline pressures — and the bank’s tone will likely determine whether silver’s recovery from the $72 level can solidify or fizzles under the weight of its own contradictions.