Silver's Short-Term Gloom Masks Long-Term Supply Squeeze

Silver edges up 2% to $75.20 but faces headwinds from elevated Treasury yields, a strong dollar, and narrowed deficit forecast; analysts split on near-term direction.

The silver market is sending mixed signals. Spot prices edged up 2% on Wednesday to $75.20 an ounce, a tentative recovery after last week's brutal 17% rout, but the metal remains under pressure from a hawkish Federal Reserve and shifting industrial demand patterns. The recent monthly slide of over 7% underscores just how fragile the rebound is.

The overriding drag comes from the US bond market. The ten-year Treasury yield stands at 4.64%, while the 30-year yield has climbed to 5.19% — its highest level since July 2007. For a non-yielding asset like silver, elevated returns on safe bonds make holding the metal less attractive. A robust dollar, with the Dollar Index hovering near 99.33, adds an extra layer of cost for overseas buyers. Traders are once again pricing in a non-trivial probability of a rate hike as early as October, according to the primary source, while Morgan Stanley argues the Fed could keep rates on hold through 2027. The CME Group pegs the chance of a June cut at under 3%, reflecting how quickly rate expectations have hardened.

On the fundamental side, the narrative is more nuanced. The global silver market is heading for its sixth consecutive annual deficit, but the shortfall is now expected to be much narrower than previously forecast. UBS has slashed its deficit estimate for this year from around 300 million ounces to just 60–70 million ounces, citing weaker demand from the photovoltaic sector, outflows from silver investment products, and a slight uptick in mine supply. Solar manufacturers are actively reducing the amount of silver used per panel, driving an estimated drop in solar-related demand of nearly one-fifth. Consumer demand for jewelry and silverware has also softened. UBS now projects full-year demand at 300 million ounces.

Yet the physical market tells a different story. COMEX inventories have fallen sharply from 531 million ounces last October to roughly 315 million ounces, reflecting a steady drain of stockpiles. The Silver Institute reports that about 70% of global silver output comes as a byproduct of copper, lead, and zinc mining, meaning higher prices do little to spur rapid supply growth. Emerging consumption drivers — artificial intelligence data centers, 5G buildout, and electric vehicle production — are expected to underpin long-term demand even as traditional users retrench.

Analysts remain divided on near-term direction. UBS has lowered its price targets to $85 by the end of the second quarter, $80 by year-end, and $75 by March 2027, implying a prolonged sideways grind. Citigroup, by contrast, still sees potential for a rally to $110 later this year. Bank of America forecasts an average of $85.93 in 2026, while JPMorgan projects $81. The Reuters consensus settles at just under $80.

Technically, silver remains vulnerable as long as it trades below its moving averages at $76.60 and $81.28. The next major catalyst arrives Wednesday evening with the release of the Federal Reserve's meeting minutes. A dovish tone could fuel a swift bounce; continued hawkish language would likely cap any recovery. Thursday's US purchasing managers' indices will then test whether the industrial demand narrative holds up against macro headwinds.