Silver fell over 8% as surging US Inflation erased all Fed rate cut bets for 2026. UBS slashed silver Investment Demand forecasts as the Supply Deficit outlook narrowed sharply.

Key Highlights

  • Spot silver fell more than 8% to $76 per ounce on Friday, marking a second consecutive session of decline.
  • US producer, Import, and export prices rose at their fastest pace since 2022 in April, intensifying inflation fears.
  • Money markets have fully priced out any Federal Reserve rate cut in 2026, with a December hike now assigned meaningful probability.
  • UBS cut its full-year silver investment demand forecast from over 400 million ounces to 300 million ounces.
  • The projected silver market supply deficit has been revised sharply lower, from 300 million ounces to 60 to 70 million ounces.

A Sharp Reversal in a Previously Resilient Market

Silver recorded one of its sharpest single-session declines of the year on Friday, dropping more than 8% to around $76 per ounce. The move extended losses for a second consecutive day and reflected a broader repricing across precious metals, fixed income, and equities as markets absorbed a deteriorating inflation outlook. Spot gold also fell around 2%, while silver futures declined by a steeper Margin, underscoring the metal's higher Volatility relative to gold during risk-off episodes.

The sell-off was not isolated to silver. Global sovereign bond yields surged, Equity markets in Asia and Europe fell sharply, and US futures pointed to a negative open on Wall Street, all converging into a broad-based reassessment of the macro environment.

Inflation Data Resets Monetary Policy Expectations

The proximate cause behind Friday's move was a significant shift in Federal Reserve rate expectations. Recent data showed that US producer prices, import prices, and export prices all rose at their fastest pace since 2022 in April, while annual consumer inflation climbed to its highest level since 2023. The prolonged closure of the Strait of Hormuz, which has kept energy costs elevated, has been a primary driver of this inflationary resurgence, feeding through into transportation, Manufacturing, and broader input costs across the economy.

The market response was swift. Money markets have now fully priced out any probability of a rate cut from the Federal Reserve in 2026. More significantly, traders are beginning to assign a meaningful probability to an outright rate hike by December, a scenario that would have appeared unlikely only weeks ago. The US 10-year Yield/">Treasury Yield rose by approximately 9 basis points on Friday to around 4.54%, its highest level in nearly a year, further reinforcing the tightening financial conditions narrative.

For silver, the implications are direct. Higher interest rates increase the Opportunity cost of holding non-yielding Assets. A stronger US dollar, which rose alongside yields on Friday, makes dollar-denominated commodities more expensive for international buyers, compressing demand at the margin. Both forces acted simultaneously against silver on Friday.

Fundamental Outlook Weakens as UBS Revises Forecasts

Beyond the macro pressure, silver's fundamental picture also deteriorated. UBS strategists materially revised their investment demand outlook for the metal, cutting their full-year forecast from over 400 million ounces to 300 million ounces. The revision reflects weaker industrial demand conditions and a rise in mine supply that has outpaced earlier projections.

The more significant shift was in the supply-demand balance. UBS now expects the silver market's supply deficit to narrow dramatically, from a previous estimate of approximately 300 million ounces to somewhere between 60 and 70 million ounces. A shrinking deficit removes one of the more compelling structural arguments that had underpinned bullish positioning in silver over recent quarters. When that argument weakens simultaneously with a sharp deterioration in the macro backdrop, the conditions for an outsized correction are in place.

Profit-Taking Amplifies the Decline

Silver had posted strong gains over the preceding months, driven by a combination of safe-haven demand, inflation hedging, and industrial use tied to solar panel manufacturing and electronics. That extended rally left positioning stretched and created the conditions for an accelerated unwind once sentiment turned. Profit-taking among institutional holders amplified the move, with silver ETFs recording sharp outflows on Friday.

The broader market message on Friday was that assets which had benefited from a specific macro narrative, namely easing inflation and approaching rate cuts, are vulnerable to a rapid reassessment when that narrative reverses. Silver, sitting at the intersection of monetary sensitivity and industrial demand, absorbed that reassessment acutely.