September's U.S. nonfarm payrolls unexpectedly came in weak, briefly cooling rate hike expectations. However, the minutes from the Fed's September meeting showed that most officials believed one more rate hike before year-end "could be appropriate." The U.S. added only 29,000 nonfarm jobs in September, with the unemployment rate rising to 4.2%. The shockingly weak payrolls data briefly cooled rate hike expectations. But the Fed's September meeting minutes showed most officials considered one more rate hike before year-end "possibly appropriate," pushing the probability of a December hike back up to 80%–85%. The core variable driving silver pricing has now shifted from "whether rates will rise" to "how long high rates will persist," with elevated real interest rates and a strong dollar continuing to weigh on silver prices. Additionally, geopolitical tensions in the Middle East remain elevated, and the negative feedback loop of oil prices—inflation—tightening continues to strengthen, with monetary tightening expectations set to persistently pressure silver prices.
Silver fundamentals present a mixed picture. The Silver Institute projects that the global silver deficit will widen to 46.3 million ounces in 2026, a 15% increase from the 40.3 million ounce deficit in 2025, marking the sixth consecutive year of supply shortage. At the same time, investment demand is expected to grow 18%, but silver demand from the photovoltaic sector is forecast to decline by approximately 19% year-on-year. Domestic silver inventories continued to rise, with Shanghai Futures Exchange silver stockpiles climbing from 1,407.5 tonnes on September 11 to 1,490.8 tonnes on October 2. Currently, Shanghai silver lacks a clear single-direction driver in the short term and will likely remain range-bound, with room for the gold-silver ratio to correct upward.
U.S. Job Market Weakens
On October 2, the U.S. Labor Department reported that September nonfarm payrolls rose by only 29,000, far below the market expectation of approximately 98,000, while August data was revised down to 133,000. The unemployment rate rose to 4.2%, and wage growth slowed somewhat. Breaking down the data, August JOLTS job openings stood at 7.079 million, the quits rate remained at a low 1.9%, and the layoff rate was 1.0%, overall reflecting a "low hiring, low firing" pattern. This means workers find it difficult to secure wage premiums by switching jobs, further reducing the risk of a wage-inflation spiral and weakening the policy transmission chain of "tight labor market—sticky services inflation—sustained Fed rate hikes." For silver, a weakening job market on one hand lowers rate hike expectations, providing a valuation boost for silver prices; on the other hand, it implies that overall demand from manufacturing and end consumers is being revised down, and silver's industrial attributes will be priced in accordingly, making it difficult for the bullish factor to translate into actual price gains. The chart shows U.S. nonfarm payrolls and the unemployment rate. Moreover, U.S. inflation expectations remain at elevated levels. The price sub-components of the U.S. September ISM manufacturing and services PMIs continued to rise, and combined with high uncertainty in Middle East geopolitical tensions, the transmission from oil prices to inflation expectations and the Fed's policy path could restart at any time. For precious metals, although both the labor market and Fed rate hike expectations have cooled, the Fed's tightening expectations still have room for upward revision given that prices remain elevated.
Dollar Maintains Strong Posture
The Fed's September policy meeting unanimously approved a 25 basis point rate hike, raising the federal funds rate target range to 3.75%–4.00%, the first resumption of tightening since July 2023. The dot plot released at this meeting showed that 16 of 18 officials expect at least one more rate hike within the year, with the median rate forecast for end-2026 raised from 3.8% in June to 4.125%, the PCE inflation forecast upgraded to 3.7%, and the timeline for inflation returning to the 2% target pushed back to 2029. The meeting minutes released on October 7 further showed that most officials believed one more rate hike before year-end "could be appropriate." Before the Fed clearly signals a policy pivot, real interest rates and the dollar remain the core variables dominating silver pricing. Recently, U.S. Treasury yields have risen across the curve, with the long end rising more significantly. The core drivers include U.S. inflation stickiness exceeding expectations, repricing of Fed policy expectations, and combined with high U.S. fiscal deficits and heavy long-bond supply, all pushing up Treasury term premiums. The dollar's strength mainly relies on the interest rate differential advantage between the U.S. and Europe and between the U.S. and Japan. Compared to economies like Europe and Japan, the U.S. has a slower pace of inflation decline, stronger economic resilience, and a more "hawkish" monetary policy stance, driving the dollar to maintain its strong posture. However, the room for further significant dollar appreciation is limited, and future movements will depend heavily on U.S. inflation, nonfarm payrolls data, and policy changes from major global central banks.
Middle East Geopolitical Situation Remains Volatile
The Middle East geopolitical situation currently still carries high uncertainty, with Iran insisting that the Strait of Hormuz will not reopen until seven conditions are met. The U.S. side is currently focused on the nuclear issue, while Iran has listed the strait issue as a priority for resolution. The transmission chain of this geopolitical factor is: geopolitical tensions—oil price rise—inflation expectations heat up—tightening bets strengthen—real interest rates rise—silver prices under pressure. Since late August, precious metals and oil prices have re-established a negative correlation, with the inflation transmission chain currently dominant. Before oil prices show a pullback, the geopolitical factor's impact on precious metals remains negative, and continued attention should be paid to further geopolitical developments.
Short-Term Fundamentals Remain Weak
The Silver Institute projects that the global silver deficit will widen to 46.3 million ounces in 2026, a 15% increase from 40.3 million ounces in 2025, marking the sixth consecutive year of shortage. As of October 8, COMEX silver inventories stood at approximately 10,359 tonnes, relatively ample. Shanghai Futures Exchange silver stockpiles rose from 1,407.5 tonnes on September 11 to 1,490.4 tonnes on October 8. Although global supply has been in deficit for multiple consecutive years, visible exchange inventories remain at high levels, with SHFE inventories hitting a near one-year high. This indicates that previously accumulated inventories are still being digested, and short-term spot supply is relatively ample, which is an important factor suppressing silver prices. China's exports of unwrought silver rose to 407.7 tonnes in August, up 15% month-on-month. China's silver imports are mainly silver powder, with August silver powder imports at 148 tonnes, down 24% month-on-month. Currently, China's silver exports remain at high levels while imports have contracted, reflecting a pattern of weak domestic demand and relatively loose supply. The chart shows China's silver import and export volumes. Ample inventories and weak demand are important factors suppressing silver prices in the short term, but if photovoltaic demand recovers and inventories are gradually depleted, the support from the supply deficit for silver prices will re-emerge. Overall, silver prices will likely remain in a narrow range in the short term, with range trading as the primary approach, requiring continuous tracking of changes in Fed policy expectations, U.S. inflation and employment data, and geopolitical developments.
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