Silver Price Plunges 9% on May 15 Amid Fed Uncertainty

Silver Price Collapse and Market Context

Spot silver prices fell sharply on May 15, 2024, declining 9.03% to $75.894 per ounce, while COMEX silver futures dropped more than 10%. Domestically, Shanghai’s main silver contract AG2705 fell 10% during daytime trading and 6.79% in overnight sessions, closing at 18,889 yuan per kilogram. Gold prices also declined but with smaller losses, falling 2.37% to $4,539.39 per ounce at close, while COMEX gold futures fell 3.02%.

The decline marks a sharp reversal following seven consecutive days of gains that had pushed silver prices near $90 per ounce, with market participants briefly anticipating a return to the $100 level. Since touching a historical high of $121 per ounce in January 2024, silver has declined approximately 34%, with a maximum drawdown approaching 50%.

Immediate Catalysts for the Price Drop

The sharp decline occurred after the Shanghai Futures Exchange announced on May 15 that it would raise the AG2705 contract daily price limit to 17% and adjust trading margin requirements to 18% for hedging positions and 19% for general positions, reflecting heightened volatility.

Monetary Policy and Bond Yields

According to analysis from Guotai Futures analyst Bai Sunai, the core drivers behind silver’s sharp decline are rising monetary policy tightening expectations and elevated bond yields. U.S. April CPI and PPI data came in above consensus, reigniting focus on previously overlooked high oil prices and inflation risks. As stated by Bai Sunai in an interview with Pauper News:

“The market is concerned that amid high geopolitical uncertainty between the U.S. and Iran and continued Strait of Hormuz disruptions, sustained depletion of global crude inventories could maintain elevated oil prices over an extended period, further amplifying inflation risks. This will pose significant challenges to incoming Federal Reserve Chair Kevin Walsh and increase uncertainty around Fed monetary policy.”

On May 15, 2024, Jerome Powell formally stepped down as Federal Reserve Chair, with Kevin Walsh assuming the position. According to U.S. interest rate futures market pricing, the market now assigns a probability exceeding 50% to a Fed rate hike by January 2025 or earlier.

Everbright Futures noted that Walsh’s tenure will face significant tests regarding inflation and rate cuts, with market participants taking profits ahead of his first official statement due to risk-aversion demand. This profit-taking drove the sharp reduction in silver positions.

Simultaneously, U.S., European, and Japanese government bond yields surged across the board, further tightening global liquidity. According to Bai Sunai, 10-year U.S. Treasury yields exceeded 4.5%, 30-year yields reached the 5.0% threshold, UK political turmoil pushed British bond yields higher with 30-year gilt yields hitting their highest level since 1998, and Japan’s 10-year government bond yield climbed to 2.7%, a 29-year high. Rising global risk-free rates substantially increased the opportunity cost of holding precious metals. Nanhua Futures precious metals and new energy research team head Xia Yingying also noted that rising U.S. dollar index and Treasury yields directly increased the opportunity cost of silver and other precious metals, becoming an important driver of weakening market performance.

Policy and Geopolitical Headwinds

India raised precious metals import tariffs from 6% to 15% and tightened import restrictions to ease external reserve pressures. According to Bai Sunai, this move could dampen precious metals demand in the near term and weigh on silver prices.

On the geopolitical front, U.S.-Iran negotiations have stalled. According to CCTV News, Iran reported on May 15 that the United States rejected Iran’s written proposal containing “14 points” for ending hostilities. As the Strait of Hormuz transit risk continues to escalate, elevated oil prices are fueling inflation concerns and amplifying Fed policy uncertainty. As stated by Marex analyst Edward Meir: “The standoff between the United States and Iran has made no progress, and we are seeing continued crude oil price increases, which further reinforces the inflation narrative and is very negative for precious metals markets.”

Supply and Demand Outlook

Multiple institutions including HSBC, UBS, and Chinese futures firms project near-term pressure on silver prices but acknowledge longer-term support factors.

Supply-Side Constraints Narrowing

Global silver supply deficits are narrowing, constraining sustained price appreciation. HSBC predicts the global silver supply deficit will narrow from 143 million ounces in 2025 to 73 million ounces in 2026, further contracting to 25 million ounces in 2027 as mining and recycling supply increases.

HSBC Chief Precious Metals Analyst James Steel stated: “We believe that a modest supply-demand deficit is insufficient to drive substantial silver price increases over an extended period.”

UBS senior analysts Wayne Gordon and Dominic Schnider downgraded expectations in their research report, reducing the 2026 silver supply deficit from the prior estimate of 300 million ounces to 60–70 million ounces.

Industrial and Jewelry Demand Declining

Industrial demand comprises more than half of total silver consumption. HSBC data show industrial demand declining from a record 679 million ounces in 2024 to 657 million ounces in 2025, with further declines projected to 642 million ounces in 2026 and 618 million ounces in 2027.

On the jewelry side, HSBC projects jewelry demand will fall from 189 million ounces in 2025 to 157 million ounces in 2026.

As stated by UBS strategists Wayne Gordon and Dominic Schnider: “For 2026, we expect photovoltaic demand to weaken due to high prices; similarly, elevated prices are dampening silverware and jewelry demand. Combining these channels, we estimate approximately 50 million ounces of demand reduction.” On the investment side, known ETF holdings have declined by nearly 70 million ounces to approximately 794 million ounces, while net speculative futures positions have retreated to slightly above 100 million ounces.

UBS downgraded full-year investment demand expectations from above 400 million ounces to 300 million ounces, describing this forecast as “generous” given year-to-date outflows.

Institutional Price Forecasts

UBS substantially lowered its silver price targets. The firm reduced its 2026 second-quarter target from $100 per ounce to $85 per ounce, its September target from $95 per ounce to $85 per ounce, its year-end target from $85 per ounce to $80 per ounce, and its 2027 March forecast from $85 per ounce to $75 per ounce.

HSBC raised its 2026 average price forecast to $75 per ounce (from $68.25 per ounce) and 2027 to $68 per ounce (from $57 per ounce). However, HSBC maintained a cautious medium-term outlook, warning that narrowing silver supply deficits and weakening industrial and jewelry demand limit sustained price appreciation potential. The bank set 2026 and 2027 year-end targets at $70 per ounce and $65 per ounce respectively.

Medium and Long-Term Outlook

Bai Sunai expects silver prices to face near-term pressure amid elevated geopolitical uncertainty, rising monetary policy tightening expectations, and liquidity constraints. However, in the medium to long term, silver may resume an upward trend with periodic fluctuations once geopolitical tensions ease and Fed monetary policy becomes clearer. Support factors include de-dollarization trends supporting precious metals over the longer term and rigid industrial demand for silver in photovoltaics, new energy, AI, and semiconductor sectors. These industrial applications are expected to provide price support in the $70–$75 per ounce range.