Silver Plunges 6% as Market Anticipates Interest Rate Hike

Silver prices fell 6% to US$79 per ounce on Friday (May 15), extending their decline for the second consecutive session. The decline occurred as the market responded to a combination of renewed concerns about US inflation and growing speculation that interest rates could remain high for longer, even opening the door to further increases.

The main trigger came from US price data, which showed increasing upstream inflationary pressures. In April, producer prices, as well as import and export prices, rose at the fastest pace since 2022. Annual inflation was also reported to have reached its highest level since 2023, linked to the prolonged Iran war and the closure of the Strait of Hormuz, which disrupted energy and logistics routes.

This situation has shifted monetary policy expectations. The market has now completely ruled out the possibility of a Fed rate cut this year, while some market participants have begun to consider a December rate hike. The mechanism is clear: when interest rate expectations rise, yields on interest-bearing assets tend to be more attractive and the dollar has the potential to strengthen, putting pressure on non-yielding precious metals.

Additional pressure comes from silver's fundamentals

Additional pressure comes from silver's fundamentals. UBS strategists cut their full-year investment demand forecast from over 400 million ounces to 300 million ounces, citing weakening industrial use and increasing mining supply. UBS also expects the silver supply deficit to narrow sharply to around 60–70 million ounces, significantly smaller than the previous estimate of around 300 million ounces, reinforcing the perception that the silver market tightness is less severe than initially anticipated. (asd)

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