Silver dropped to $76 an ounce as the ongoing blockage of the Strait of Hormuz kept energy prices high, fanned inflation fears and raised the prospect of prolonged central bank rate tightening. The metal is down 17% since the Middle East conflict began, caught between weakening industrial demand and a rate environment hostile to non-yielding assets.

Key Highlights

  • Silver fell to around $76 an ounce on Thursday, reversing the previous session's gains amid persistent Middle East tensions
  • Iran has maintained control of the Strait of Hormuz, restricting international shipping and reportedly firing on commercial vessels this week
  • The US has upheld its blockade of Iranian ports, which Tehran has condemned as a breach of the ceasefire; President Trump says the truce will hold indefinitely pending a new peace proposal from Iran
  • Surging energy prices have stoked inflation concerns, reducing the likelihood of near-term central bank rate cuts — a direct headwind for non-yielding assets such as silver
  • Silver has lost approximately 17% of its value since the onset of the conflict, underperforming gold which continues to trade above $3,200 an ounce
  • The gold-to-silver ratio has widened to historically elevated levels, with some analysts viewing this as a precursor to silver outperformance once geopolitical risk abates
  • Industrial demand — which accounts for more than half of total silver consumption — is under pressure as high energy costs weigh on manufacturing activity globally

Silver fell to around $76 an ounce on Thursday, erasing gains from the previous session and underscoring the metal's vulnerability to the geopolitical and macroeconomic crosscurrents that have gripped commodity markets since the outbreak of hostilities in the Middle East.

The decline came as Tehran maintained its stranglehold over the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world's traded oil passes, with reports emerging that Iranian forces had fired on commercial vessels earlier in the week. The blockage has kept energy prices elevated, stoking inflation concerns and raising the prospect that major central banks may be forced to keep interest rates higher for longer — a prospect that has weighed heavily on non-yielding assets including silver.

The metal is now down approximately 17 per cent since the conflict began, a sharper fall than many analysts had anticipated at the outset of the crisis, when silver's dual identity as both a precious and industrial metal had led some investors to expect greater resilience.

A fragile truce

The geopolitical backdrop remained deeply uncertain on Thursday. President Donald Trump said the existing ceasefire between Washington and Tehran would remain in place indefinitely, adding that the United States was awaiting a new peace proposal from the Islamic Republic before any further negotiations could proceed. The statement offered little comfort to markets hoping for a swift resolution.

Washington has meanwhile upheld its blockade of Iranian ports, a move the Trump administration has framed as economic pressure designed to accelerate diplomatic progress. Tehran has condemned the blockade as a material breach of the ceasefire agreement and vowed to respond in kind, leaving the situation in a precarious equilibrium that has confounded traders attempting to price in the risk.

"This is not a static situation," said one commodities strategist at a European bank, speaking on condition of anonymity. "Every day that the strait remains closed is another day of compounding inflationary pressure. Central banks are watching, and so are currency markets. Silver is caught in the middle."

Energy shock meets monetary tightening

The mechanism by which the Hormuz crisis has depressed silver is somewhat counterintuitive. In classic market theory, heightened geopolitical tension tends to boost demand for safe-haven assets, a category in which silver has historically been included alongside gold. But the nature of this particular shock — an energy supply disruption rather than a financial system stress event — has produced a different set of pressures.

Surging crude oil prices, driven by the near-complete restriction of tanker traffic through the strait, have transmitted rapidly into broader consumer price indices across Europe, North America and Asia. Central bankers, who had spent much of the past two years carefully managing the descent of post-pandemic inflation, have been forced to reassess. The Federal Reserve held rates steady at its most recent meeting but signalled that the bar for cuts had risen materially. The European Central Bank struck a similarly cautious tone.

For silver, which pays no yield, a higher-for-longer rate environment is a direct headwind. Investors holding the metal forgo interest income, and when bond yields rise in response to inflation expectations, the opportunity cost of holding silver increases. The result has been sustained outflows from silver exchange-traded products over the past several weeks, with positioning data showing net speculative short positions building to levels not seen since early last year.

Industrial demand in the balance

Silver's industrial applications — which account for more than half of total global demand, a far higher proportion than gold — have added another layer of complexity to the price picture. The metal is a critical input in solar panel manufacturing, electronics and, increasingly, electric vehicle components.

Manufacturing activity across major economies has softened in recent months as energy costs have squeezed margins and dampened capital investment. Purchasing managers' indices across the eurozone and parts of Asia have dipped back below the 50-point threshold that separates expansion from contraction. If industrial demand falters alongside investment demand, silver faces pressure from two directions simultaneously.

Some analysts argue, however, that the longer-term structural case for silver remains intact. The global energy transition continues to require vast quantities of the metal, and any resolution of the Hormuz crisis — however distant it may appear — could trigger a sharp recovery.

"The fundamentals haven't changed," said a metals analyst at a commodities research house in London. "Silver's role in the clean energy supply chain is only growing. But right now, the market is in risk-off mode, and silver is being treated as a risk asset rather than a haven."

Gold diverges

The divergence between silver and gold has been a notable feature of recent weeks. Gold has held up considerably better, trading above $3,200 an ounce and drawing support from central bank buying, particularly from emerging market institutions seeking to diversify reserves away from dollar-denominated assets. The gold-to-silver ratio — a closely watched gauge of relative value — has widened sharply, reaching levels that historically have preceded periods of silver outperformance once risk appetite returns.

Whether that reversion occurs depends almost entirely on what happens in the Gulf. A diplomatic breakthrough or even a credible signal that the strait might reopen could prompt a swift unwind of short positions and a rally in silver prices. But with Washington and Tehran still trading barbs over the terms of a ceasefire that appears increasingly nominal, few market participants are willing to make that call with conviction.

For now, silver sits uncomfortably between its two identities — neither safe enough to rally as a haven, nor industrial enough to benefit from any near-term demand uptick — waiting, like the rest of the market, for clarity that shows little sign of arriving.