Silver Price Retreats on Hawkish Fed Signals Amid Middle East Tensions

The silver price retreated slightly after the Federal Reserve's decision to keep interest rates unchanged, but a hawkish division within the central bank and a strong US dollar could still support inflation hedges and physical demand.

The Fed's 9-3 vote with three hawkish dissents shows that pressure for tighter policy is building, even if officials chose not to act immediately. The unchanged rate reduces immediate opportunity-cost pressure on non-yielding assets, but the three dissents indicate further tightening remains under consideration.

A stronger dollar would weigh heavily on silver because of its smaller and more volatile market compared to gold. However, a sixth consecutive annual deficit in 2026 is expected, with demand exceeding supply by about 67 million ounces, which could support physical investment and cushion selloffs.

The Silver Institute forecasts a big jump in physical investment, up 20% to a three-year high of 227 million ounces, while industrial demand remains weak due to the solar industry's trend towards reducing silver usage. A retest of $60 is still possible if policy-path fears cool and the dollar fades without rate cuts.

Middle East tensions add another source of volatility, with defensive buying potentially providing support but also higher oil prices reinforcing inflation and lifting bond yields, which could strengthen the case for another Fed increase.