Silver (XAG/USD) fell after two days of gains and traded near $76.10 per troy ounce during Asian trading on Friday. The move followed higher expectations that the US Federal Reserve may keep policy tight.
Energy prices linked to the Strait of Hormuz have raised concerns about higher US inflation and inflation expectations. A firmer US growth outlook has also added pressure to non-yielding assets such as silver.
Federal Reserve Policy Outlook
Federal Reserve officials are holding the federal funds rate steady while reviewing short-term rate settings. Policymakers have moved away from rate cuts and have signalled they could raise rates if inflation does not cool.
US-Iran talks kept markets cautious about inflation risks and the interest rate outlook. US Secretary of State Marco Rubio said there were encouraging signs, with Pakistani mediators expected to visit Tehran as Iran reviews Washington’s latest proposal.
Iranian officials said no deal has been reached, though gaps have narrowed. Reuters reported Supreme Leader Mojtaba Khamenei said uranium enrichment and control of the Strait of Hormuz remain key obstacles, and Iran is also discussing a permanent toll system with Oman, which President Donald Trump has rejected.
We are seeing a significant shift from the sentiment last year when silver was trading near $76 and the market was pricing in Fed rate hikes. The narrative has now flipped, with a focus on when the Federal Reserve might begin its easing cycle. This change has helped silver build a support base, and we now see it trading around $68.
Key Market Drivers
With the latest US Consumer Price Index data for April 2026 showing core inflation moderating to 3.1%, the case for holding rates higher has weakened. Derivative markets are reflecting this, with Fed funds futures now pricing in a 65% probability of at least one rate cut by the fourth quarter. This evolving interest rate outlook makes holding a non-yielding asset like silver more attractive.
The US-Iran peace negotiations we monitored in 2025 did not result in a lasting agreement, and tensions over the Strait of Hormuz remain a background risk. While not the market’s primary focus, any escalation could trigger sharp volatility and a flight to safety. Traders should consider using options to define risk, as geopolitical headlines could still surprise the market.
Furthermore, we are seeing very strong industrial demand, a factor that was less of a focus last year. Projections for 2026 show global silver demand from the solar panel industry is set to increase by over 15%, creating a solid floor for prices. This underlying physical demand provides a strong argument against initiating significant short positions in the metal.
The Gold/Silver ratio currently sits near 88:1, which is well above the 21st-century average of approximately 65:1. Historically, such a high ratio has often indicated that silver is undervalued relative to gold. This suggests that strategies involving going long silver against a short position in gold could present an opportunity in the weeks ahead.
