Current geopolitical uncertainties persist, and the macro monetary environment exerts strong downward pressure on precious metals. Coupled with the Federal Reserve's interest rate meeting being held this week, market sentiment is cautious. Silver prices are likely to fluctuate weakly, and subsequent attention should be paid to inflation data and the Federal Reserve's monetary policy guidance.

The situation in the Middle East has been volatile recently, exacerbating fluctuations in international oil prices. Inflation expectations have risen, expectations for Federal Reserve interest rate hikes remain strong, and the U.S. dollar index and U.S. Treasury yields have stayed elevated. The oversold rebound sentiment built up amid consecutive declines in precious metal prices has gained momentum, leading to a modest recovery in silver prices. However, geopolitical uncertainties persist, and the macro monetary environment is exerting strong downward pressure on precious metals. With the Federal Reserve's interest rate meeting scheduled for this week, market sentiment has leaned toward caution. Silver prices are likely to see weak volatility, with focus to be placed on upcoming inflation data and subsequent monetary policy guidance from the Federal Reserve.

U.S. Inflation Cools, Economy Shows Resilience

The U.S. economy continues to show strong resilience. The manufacturing PMI in June came in at 53.3, lower than the expected 54 and the previous value of 54, with the manufacturing sector maintaining overall expansion. The prosperity indicators such as production and new orders saw a slight decline but remained resilient, while the employment sub-index continued to improve but still stayed below the 50 boom-bust line. The services PMI dropped from 54.5 to 54.0, below the expected 54.2, and has remained in the expansion range for 24 consecutive months. The employment index recorded the largest increase since 2024 and returned to the expansion zone. The prices paid index fell to a 4-month low.

U.S. inflation data for June fell more than expected. The CPI dropped 0.4% month-on-month in June, marking the largest monthly decline since April 2020, and fell to 3.5% year-on-year, significantly lower than the previous value of 4.2%. Core CPI was flat month-on-month and dropped to 2.6% year-on-year, with inflation persistence weakening significantly. The core driver of cooling inflation comes from a sharp drop in energy prices. The energy subindex plummeted 5.7% month-on-month in June, with gasoline and energy commodity prices falling sharply, effectively easing inflationary pressures. The current data supports a downward revision of rate hike expectations.

In addition, the U.S. job market is cooling simultaneously. The number of new non-farm payroll jobs in June was only 57,000, far below the market expectation of 113,000, and the non-farm employment data for April and May were revised down by a total of 74,000. Employment in the leisure and hospitality, retail, and information industries has dropped significantly, wage growth has remained stable, and the risk of a "wage-inflation spiral" has decreased. The weak inflation and employment data have led the market to revise down its expectations for the Federal Reserve to raise interest rates this year. However, due to the recent escalation of geopolitical conflicts in the Middle East and the continuous rebound in international oil prices, the market still worries about the risk of a rebound in inflation, and there is an expectation that monetary policy may remain neutral to tight in the future.

The Federal Reserve holds its monetary policy meeting this week, and expectations of an interest rate hike are heating up

Driven by the impact of rising oil prices, geopolitical conflicts and AI-driven inflationary pressures, the market's probability expectation that the Federal Reserve will raise interest rates by 25 basis points this week has surged to 36% to 40%. In addition, recent Federal Reserve officials have released "hawkish" remarks. Jerome Powell, the new Chairman of the Federal Reserve, has shown a tough "hawkish" stance, declaring "zero tolerance" for the five-year high inflation and explicitly refuting the market view that the fight against inflation is "basically won" due to the month-on-month decline in the June CPI. Powell's "hawkish" stance has weakened market expectations for an interest rate cut by the Federal Reserve within the year, the U.S. dollar index and U.S. bond yields have remained at high levels, and the upward pressure on precious metal prices has intensified.

Looking ahead, although the market expectations for a preemptive rate hike are rising, the baseline scenario remains that interest rates will remain unchanged in the second half of 2026. Walsh has clearly stated that the Federal Reserve will not provide forward guidance on the future interest rate path, so the performance of future U.S. economic data and the attitudes of Federal Reserve officials are particularly important. Considering that the labor market may cool down subsequently, while the drop in oil prices and the low wage growth rate will help suppress inflation, it is expected that the Federal Reserve will keep interest rates unchanged before September, the probability of a rate hike in December is close to 90%, and the baseline scenario is two rate hikes in 2027.

Industrial demand for silver has been declining consecutively

Over the past few years, under the global new energy revolution led by China, the photovoltaic industry has led the industrial demand for silver. The cumulative supply gap of silver in the past four years has been about 20,000 tons, equivalent to approximately half a year of global output. It is estimated that the global silver supply gap will reach 1,440 tons in 2026, which is wider than that in 2025 and remains at a high level. The global supply shortage of silver may further support silver prices.

It is estimated that the global total silver supply in 2026 will be 33,167 tons, a decrease of 747 tons compared with 2025, of which mine supply is 26,254 tons and recycled silver is 6,571 tons. On the demand side, the global total silver demand is expected to be 34,606 tons in 2026, a decrease of 560 tons from 2025. Among them, the total industrial demand for silver has declined for the third consecutive year. The total industrial demand for silver in 2026 is expected to be 19,894 tons, accounting for 57% of the total silver demand, while the total industrial demand for silver in 2025 was 20,447 tons, a year-on-year decrease of 3%. The demand for silver in the photovoltaic industry continues to decline. It is estimated that the demand for silver in the photovoltaic industry in 2026 will be 4,698 tons, a decrease of 932 tons compared with 2025. The physical demand for silver will increase in 2026, with an expected figure of 8,013 tons. Although there may still be a supply-demand gap for silver this year, silver consumption demand may come under pressure as the centralized installation of domestic photovoltaic projects concludes.

There is still room for the gold-silver ratio to recover

Although both gold and silver are regarded as precious metals and their prices are likely to rise and fall together, there are significant differences in their price trends due to the distinctions in their basic attributes. Gold has a strong anti-inflation property, but its safe-haven property has a greater impact. Its main demand lies in investment or safe-haven, and it acts as an inflation hedge and a safe-haven asset when the market trend is weak. Silver has both financial and industrial attributes and is widely used in fields such as photovoltaics, electronics, new energy, and industrial manufacturing. The final industrial consumption accounts for nearly 60% of silver's total usage. Silver prices are relatively sensitive to the economic cycle; economic recession will drag down silver prices from the demand side, forming a negative impact. In periods of high economic or geopolitical uncertainty, gold prices rise more than silver prices, and the gold-silver ratio expands. During the economic recovery period, driven by the growth in industrial demand, silver prices will rise to a greater extent, and the gold-silver ratio will narrow.

From the end of November 2025 to the beginning of February 2026, the price of silver rose significantly more than that of gold, and the gold-silver ratio quickly dropped from 80 to around 46. Subsequently, silver prices pulled back rapidly, pushing the gold-silver ratio back up to around 61, yet it remained at a historically low level. In the future, there is still a possibility for the gold-silver ratio to be further revised upward.

Overall, current geopolitical uncertainties persist, and the macro monetary environment exerts strong downward pressure on the prices of precious metals. Coupled with the Federal Reserve's interest rate meeting this week, silver prices are likely to trade with a weak bias. If the Federal Reserve unexpectedly raises interest rates at its July meeting, the market will reprice a sustained tightening path, and U.S. bond yields will continue to rise. Silver has a relatively strong industrial attribute and higher price volatility. If the Federal Reserve unexpectedly raises interest rates by 25 basis points, silver prices may experience even larger declines. If the Federal Reserve "stands pat", the short-term rate hike expectations will be falsified, U.S. bonds and the U.S. dollar will weaken simultaneously, and the prices of gold and silver will see a short-term rebound for repair. However, this rebound will only be a short-term market movement, and the rate hike expectations for September will still cap the upside of the rebound.

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