Spot silver opened lower but moved higher during Asian trading hours on Monday, gaining over 2% at one point. The metal is currently trading around $56.80 per ounce and is poised for a second consecutive session of gains.
The persistent escalation of geopolitical risks is not only directly boosting safe-haven buying for silver but is also fueling inflation concerns through rising oil prices, creating a complex landscape of conflicting forces.
Geopolitical Tensions: Conflict Escalates, Threatening Energy Supply
The geopolitical situation continues to deteriorate. U.S. forces have conducted airstrikes on Iranian targets for a ninth consecutive night. In response, Iranian officials have declared that the ceasefire agreement between the two nations is effectively abandoned, opening the door to further disruptions in the Middle East's critical energy corridors.
The conflict is rapidly escalating within the region. Iran has launched a new wave of ballistic missiles and one-way attack drones at targets in Bahrain, Jordan, Kuwait, and Iraq, triggering air raid sirens in Bahrain. Concurrently, the U.S. military reported another soldier killed in ongoing fire over the past two days, marking the third U.S. casualty recently.
The violence has expanded beyond purely military targets to critical infrastructure—bridges, utilities, and port facilities have come under attack. Over the weekend, Kuwait Petroleum Corporation confirmed that one of its oil facilities was struck by Iran on Saturday. This incident signifies that the conflict now directly threatens energy production infrastructure, further intensifying market concerns over supply disruptions.
Inflation and Rate Hike Expectations: Surging Oil Prices Lift Odds for September Hike
The oil price surge driven by the U.S.-Iran conflict is reigniting inflation worries, thereby strengthening market expectations for further Federal Reserve interest rate hikes. While the market widely anticipates the Fed will hold rates steady at its upcoming July meeting, the probability of a September rate hike has climbed to 61.4%, according to the CME FedWatch Tool.
The persistent rise in energy prices is impacting the market through two channels. First, it directly pushes up inflation expectations, undermining the recent narrative of cooling rate hikes built on softer inflation data. Second, the ongoing geopolitical risk makes it difficult for concerns over energy supply to subside in the short term, suggesting oil prices may remain elevated for a longer period.
Fed Official Commentary: Hawkish Signals from Mester on Inflation
Cleveland Fed President Loretta Mester delivered notably hawkish remarks last Friday.
Mester emphasized that businesses are calling for action to curb inflation, and consumers are "struggling to make ends meet even as the economy is growing solidly and spending is stable"—highlighting the tension between robust economic activity and social pressures. She specifically pointed out that price pressures from energy, supply chains, insurance, and AI data centers form a broad and structurally complex inflationary mix.
Mester characterized "persistently high inflation" as the greater concern, a stance tilting market expectations toward a policy position of "higher for longer."
Silver's Tug-of-War: Geopolitical Haven vs. Rate Headwinds
Silver is currently caught in a tug-of-war between geopolitical safe-haven demand and interest rate headwinds. On one hand, the escalation of the U.S.-Iran conflict and sustained Middle East tensions should theoretically boost silver's safe-haven appeal—this is the backdrop for its two-day rebound. On the other hand, the conflict-driven surge in oil prices is lifting inflation and rate hike expectations, strengthening the U.S. dollar's safe-haven status and yield advantage, thereby suppressing the performance of non-yielding assets like silver.
In the current environment, the structural issue facing silver is this: as long as the geopolitical conflict continues to push oil prices and inflation expectations higher, the Fed will find it difficult to signal a clear easing stance, meaning silver's interest rate headwinds will persist.
This "geopolitical support versus interest rate pressure" dynamic is limiting the potential for a silver rally.
Institutional Perspectives on the Market
In a July view, UBS noted that despite short-term volatility influenced by the U.S. dollar and macroeconomic data, silver's monetary attributes should strengthen once the Federal Reserve's rate-cutting cycle begins.
UBS believes that rapid global expansion in photovoltaic installation capacity, alongside growing demand for silver's conductive properties from electric vehicles and electronics, will continue to drive industrial consumption growth. On the supply side, declining grades at existing silver mines and environmental policy restrictions on new capacity are jointly leading to a widening market supply-demand gap.
Morgan Stanley maintained a neutral-to-bullish view on silver in its July 2026 commodities outlook.
Morgan Stanley analysis stated that the combination of strong growth in silver's industrial demand (particularly in solar and semiconductors) and tepid supply growth is favorable, but short-term U.S. dollar strength and macroeconomic uncertainty may cap gains.
Morgan Stanley pointed out that silver possesses both precious metal safe-haven attributes and industrial metal demand characteristics, giving it unique allocation value in the current dual context of geopolitical risk and the energy transition.
Market Summary and Outlook
Spot silver is poised for a second consecutive session of gains, but its upward prospects face significant headwinds. The ongoing escalation of the U.S.-Iran conflict—marked by nine consecutive nights of U.S. airstrikes, Iran's effective abandonment of the ceasefire, the conflict expanding to multiple national targets, and the weekend attack on Kuwaiti oil facilities—is pushing oil prices and inflation expectations higher.
The CME FedWatch Tool shows the probability of a September rate hike has risen to 61.4%. Cleveland Fed President Loretta Mester delivered strong hawkish signals last Friday, emphasizing that "persistently high inflation" is the greater concern. Silver is currently caught in the tug-of-war between geopolitical safe-haven demand and interest rate headwinds. Until inflation fears driven by the geopolitical conflict subside, the room for a silver rally may remain limited.
In the short term, silver prices may consolidate within a range of $56 to $58. A breakout in either direction will depend on developments in the Middle East situation and marginal shifts in Federal Reserve policy expectations.
As of 13:07 Beijing time, spot silver was trading at $56.85 per ounce.
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