After several days of sustained upward momentum, silver prices reversed sharply overnight, leading the decline in the precious metals sector. This rapid adjustment, while seemingly abrupt, was not entirely unexpected.
The recent price increase, stimulated by news from Peru, was previously analyzed as a catch-up rally relative to base metals. Specifically, the latest aid decree for Peru's state oil company is fundamentally aimed at alleviating the energy crisis, which helps mitigate concerns over declining mined silver supply. Any remaining emotional impact on the market is likely short-term. Broader headwinds persist, notably the geopolitical deadlock in the Middle East and the series of negative effects from potential strait blockades.
Examining the current U.S. inflation transmission path, rising energy prices are beginning to feed into core inflation. The proportion of Federal Reserve officials supporting interest rate cuts is decreasing. The incoming new Chair, Warsh, will find it increasingly difficult to advance government-led rate-cutting initiatives. Compounding this, former Chair Powell's retention as a Governor occupies a seat that would typically belong to the new Chair. Governor Milan, who has government experience and was reappointed earlier this year, was forced to resign. The weakening of government-aligned influence within the Committee implies a strengthening of the Fed's independence.
Consequently, influenced by the aforementioned data, Fed officials' comments, and Milan's resignation, the 10-year U.S. Treasury yield touched 4.5%, setting a new high since the onset of the geopolitical conflict. The 30-year Treasury yield even surpassed 5%, touching the Treasury's perceived "red line." The interest rate market continues to price in higher inflation and the ensuing tighter policy stance, exerting pressure on precious metals from a financial attribute perspective.
Therefore, for silver, the sustainability of the recent short-term rally primarily depends on whether its commodity attribute support can strengthen. This requires sustained effort from both supply and demand sides. Beyond the aforementioned potential supply disruptions, demand-side focus should be on whether improving investment demand, driven by allocation funds, combines with sustained high volumes in futures deliveries to demonstrate increased physical demand.
During this week's rebound, investment demand reversed its previous weakness, with the SLV ETF seeing an inflow exceeding 170 tons. However, COMEX silver deliveries fell short of expectations. With the May delivery period already more than half over, the cumulative delivery volume is far below the same period in 2025 and has not yet surpassed the same period in 2024. The proportion of registered warehouse warrants has increased instead of decreased, making it difficult to replay the old narrative of a inventory squeeze.
Overall, the short-term pattern of rising first and then falling indicates that precious metals, including silver, remain in a phase of wide-range fluctuations. A return to a sustained unilateral upward trend requires a shift in the broader headwinds—specifically, when growth concerns surpass inflation anxiety and once again dominate interest rate pricing.
Figure 1: U.S. Nominal and Real Interest Rates Since 2026
Figure 2: SLV ETF and Spot Silver Price
Figure 3: COMEX Silver Monthly Deliveries Over the Past Three Years
Figure 4: Proportion of COMEX Silver Registered Warehouse Warrants
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