Silver's Supply Squeeze Meets Industrial Shift as Geopolitical Jitters Persist

Silver edges up 1.85% to $76.25 but remains 20% below pre-tension levels, caught between a structural supply deficit, geopolitical threats in Hormuz, and a looming solar industry shift to copper.

Spot silver ticked up to $76.25 per ounce on June 2, a 1.85% gain on the day, but the rally masks a market caught between a stubborn supply deficit and tectonic changes in industrial demand. The white metal now sits roughly 20% below the levels seen before the latest escalation in Middle East tensions, a gap that tells the story of competing forces pulling prices in opposite directions.

The Straits of Hormuz remain the flashpoint. Only four oil tankers are currently transiting the waterway, compared with an average of 130, after Iran suspended indirect talks with Washington following Israeli strikes in Lebanon. Tehran has threatened to blockade the chokepoint, rattling energy markets and fanning inflation fears. President Donald Trump, however, struck a more conciliatory tone, stating that negotiations are ongoing and that a memorandum to reopen the strait could come as soon as next week. For silver, the Hormuz risk is doubly damaging: any disruption pushes oil prices higher, reigniting inflation and strengthening the case for Federal Reserve rate hikes, which weigh on non-yielding assets.

On the supply side, the market is facing its sixth consecutive year of structural deficit. The primary source pegs the shortfall at 46.3 million ounces for 2026, while UBS offers a wider range of 60 to 70 million ounces — still significant even after the bank revised down its earlier forecast of 300 million ounces. Global above-ground inventories have shrunk by 762 million ounces since 2021, leaving scant buffer against sudden demand spikes. Miners like Endeavour Silver are looking to boost output by 30%, but the response is hampered by declining ore grades and rising costs at primary silver mines, which account for only 30% of global production — the rest comes as a by-product of other metals.

A structural shift in industrial consumption is also reshaping the market’s outlook. The photovoltaic industry, historically the largest buyer of silver, is moving to cut costs. Leading Chinese manufacturers Longi Green Energy and Jinko Solar have announced plans to begin mass production of copper-based solar cells in the second quarter of 2026. That pivot promises to dent silver demand from the solar sector, and it remains unclear whether other growth areas — such as electronics, energy infrastructure, and AI data centers — can fill the gap. The substitution threat adds a layer of uncertainty to the demand side that wasn't present in earlier deficit years.

Macro headwinds are building. Markets are now pricing in a Fed rate hike before year-end, with the heightened inflation from the Middle East conflict a major contributor. The string of US data releases this week — starting with JOLTS job openings on Tuesday, followed by ADP payrolls, factory orders, ISM services, and the Fed's Beige Book — will feed into expectations. The main event comes Friday with the May employment report. A hot number would firm up the dollar and push bond yields higher, pressuring silver further.

Technically, silver remains constrained. The yield on the 10-year US Treasury note is hovering near 4.5%, easing slightly but still strong enough to cap upside. The metal briefly dipped below $75 earlier in the Tuesday session, and the distance from the two-month high of $89.40 set in mid-May remains considerable. Short-term direction hinges on two catalysts: any breakthrough on the Hormuz memorandum and Friday's payrolls data. A weaker dollar would give silver breathing room, while renewed inflation fears or robust wage growth could quickly snuff out the nascent recovery.

For now, silver is walking a tightrope. The persistent deficit and dwindling above-ground stocks provide a floor, but the industrial substitution wave and the specter of tighter monetary policy are heavy counterweights. The market is pricing neither a full-blown crisis premium nor the comfort of abundant supply — instead, it's waiting for the next data point or diplomatic signal to tip the balance.