Silver's $70 Test: The Fed, Not the Shortage, Is Setting the Price

Silver is back knocking on $70, and for this metal the round number is the whole argument. In late January it touched an all-time high just above $121 an ounce, the first time in its history it had traded above $100. Within two trading days it was in a crater. By late July it was near $58, a little under half its record. Through every mile of that fall, the statistic everyone quotes for why silver should rise only got more dramatic: the supply deficit widened. Six straight years of consuming more silver than the world produces, and the price still nearly halved. So the question under the $70 line is really a question about which force owns this market — and the evidence says the shortage doesn't, at least not right now. The Fed does.

The shortage is real, and it cannot help itself

The supply number is the part everyone gets right. The Silver Institute's World Silver Survey projects a deficit of 46.3 million ounces in 2026 — wider than 2025's 40.3 million — the sixth consecutive year demand has exceeded output. Since the streak began in 2021, the market has drained about 762 million ounces out of above-ground stockpiles, the equivalent of roughly 90 percent of a year of global mine output. And supply is structurally locked: only about a quarter of the silver mined each year comes from primary silver mines; the rest is dragged out of the ground as a byproduct of copper, lead, zinc and gold mining, so a higher silver price barely calls forth more metal.

One hundred and twenty dollars and change of silver, then $58, then back near $70 — with the stockpile draining the whole way. That sequence is the cleanest experiment the market has run in years, and it tells you something important about how silver is priced. A deficit is a slow structural drain, not an immediate price driver. It decides where silver can go over years. It does not decide what the price does next month.

The Fed is the one setting the price

Silver pays no interest, so what you earn by holding it is the hope that it beats cash, bonds and the dollar. A central bank that is raising rates raises all three of those competitors at once. That mechanism is why the new Fed chair matters so much to this chart — and why he is the reason the metal is stuck at the $70 door instead of through it.

Chair Kevin Warsh arrived this spring promising a quieter Fed, and his Jackson Hole speech last week was anything but quiet in substance. Twelve-month inflation as he measures it, on PCE, is 3.7 percent; the six-month rate is running at a 4.1 percent annualized clip. He pointed out that 54 percent of the goods and services in the inflation basket rose more than 3 percent over the past year, reminded listeners that the Fed had been responsible for 65 months of elevated inflation, and re-committed to a "firm, fixed target" of 2 percent. His standard was unambiguous: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do." In July three regional presidents already dissented in favor of raising rates on a 9-3 vote, and going into Jackson Hole markets were pricing around a 74 percent chance of a hike in December.

Watch what the two forces did to each other earlier this year and the pecking order is no longer in doubt. Silver's January record run was powered in significant part by expectations that the Fed would keep cutting rates cheap. When inflation re-accelerated — May's CPI hit 4.2 percent on an energy spike tied to Iran-related conflict — the easing hopes died, and the leveraged longs who had ridden silver to $121 were flushed out: the sharpest gold-and-silver selloff in 13 years, with silver collapsing more than 17 percent from about $120 to $95 in a single January session. Analysts said plainly afterward that the crash was a speculative position unwind, not a change in the physical-market story. Let those two facts sit next to each other: the deficit was widening even as the price was being cut almost in half. In the short run the Fed prices silver; the shortage only owns the story.

The $70 standoff, both sides

None of this means the bulls have no case at $70 — it means the case has to run through the Fed data first. The rally off the late-July low has real evidence behind it. July's CPI printed cool: 0.1 percent month over month, 3.4 percent year over year, with core at 2.5 percent. The de-escalation of tensions in the Strait of Hormuz took the oil shock out of the inflation pipeline, and the odds of a September hike slid from 67 to 55 percent. Positioning tells the same story: speculative net longs are down to 20.5 percent of open interest, the 20th percentile of the past 60 weeks — the froth that produced January's blow-off is gone. And money is flowing back in: the biggest silver ETF, SLV, saw roughly $2.7 billion of net redemptions over the first part of the year but has taken in more than $600 million over the past month.

The physical market, meanwhile, shows strain behind the scenes. London vaults had just 17 percent of their silver unencumbered at the squeeze point last autumn before recovering to 28 percent. Shanghai bars have at times changed hands at double-digit premiums over London. COMEX registered inventories have fallen roughly 75 percent since 2020. This is what a real, multi-year shortage looks like when it is being absorbed quietly by inventory instead of loudly by price.

The bear case deserves its own respect, and it is not only the Fed. Retail coin and bar buying is up 18 percent this year and keeps feeding the deficit — but the demand side has a technology wildcard. Solar panels are the largest single industrial use for silver, taking close to 190 million ounces in 2025, and manufacturers are thrifting relentlessly: forecast silver use per panel is already down roughly a fifth, and J.P. Morgan models solar silver demand falling about 30 percent, or roughly 60 million ounces, on thrifting, destocking and weaker import demand in China and India. A shortage that narrows from the demand side is a very different story from one that widens from the supply side.

What the banks' disagreement tells you

Look at the price forecasts and you will notice what the banks are arguing about. J.P. Morgan, the most prominent bearish revision, now sees a $70 average for 2026, $63 in the fourth quarter and $63 in 2027 — and expects the gold-to-silver ratio to keep normalizing toward 75, which is another way of saying gold beats silver. Citi still carries a $110 second-half target. The LBMA's annual survey consensus sits near $79.57. The full-year spread is enormous.

The tell is that almost no one disagrees about the deficit — not one major bank has declared the shortage over. They disagree about the dollar and real yields, which is to say they disagree about the Fed. That is the signature of a macro market wearing a supply narrative. The ratio makes the point visually: silver was so bid in late January that one ounce of gold cost under 45 ounces of silver; today it costs around 70. Silver has gone from the monetary trade's star to its laggard, purely because the monetary regime flipped underneath it.

So here is the honest reading of the $70 line. The deficit is the reason to care about silver and the reason its long-term trajectory still points up; it is also, right now, not the thing deciding whether the metal clears $70. The Fed is, and the Fed's own chair just reminded the market he has "work to do." Lynch-pin a silver position on the shortage and you will be right eventually and early, repeatedly. Treat the deficit as what you own and the Fed as what prices it. When the tightening cycle crests — watch whether six-month PCE's 4.1 percent keeps getting contradicted by cooling cores, and whether "work to do" turns into an actual vote — the combination of a washed-out position book, returning ETF money, rising coin demand and an ever-smaller unencumbered stockpile is the classic recipe for the vertical move this market produced in January. Before that turn, the $70 line is just a number the Fed gets to approve. That is the whole argument for, and patience about, silver.