Silver's $81 Target: How a 820 Million Ounce Deficit and Solar Demand Underpin the Metal Despite Fed and Hormuz Risks

The silver market is caught in a tug-of-war that has left prices oscillating in a narrow range near $74-$75 an ounce. Behind the apparent calm, structural forces are building that could propel the metal to fresh highs — but only if the macro headwinds from geopolitics and monetary policy eventually subside.

Silver changed hands at $75.64 early this week, barely 0.5% higher, as traders weighed diplomatic overtures in the Middle East against renewed fighting on the ground. The metal remains 38% below its all-time peak of $121.64 struck in late January, yet has still managed to post a year-to-date gain of roughly 118%. That resilience reflects a market where industrial demand is running hot and global supply is failing to keep pace.

The Deficit That Won't Quit

The silver market is on track for its fifth consecutive annual deficit, with the cumulative shortfall from 2021 through 2026 expected to reach 820 million ounces. Mine output has stagnated at around 813 million ounces annually, with primary silver miners grappling with falling ore grades and rising extraction costs. Secondary supply from scrap offers only marginal relief.

Meanwhile, the photovoltaic industry alone consumes more than 230 million ounces of silver each year, and that figure continues to climb with every new solar park. Solar module production now accounts for roughly 16% of global silver demand, and the share is rising. Beyond solar, electric vehicles, 5G infrastructure, semiconductors, and medical technology are all adding to a structural demand base that shows no signs of peaking.

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This supply-demand imbalance is the bedrock of the bullish long-term case. J.P. Morgan Research expects silver to average $81 an ounce in 2026 — more than double the 2025 average — underpinned by six consecutive years of global deficit. The bank sees the metal as having completed a structural re-rating, a view supported by the gold-silver ratio of roughly 59:1, which stands well below the long-term modern average of 70:1.

The Fed's Iron Grip

The near-term picture, however, is dominated by the Federal Reserve. The central bank left its benchmark rate in a range of 3.50% to 3.75% at its last meeting, with four members dissenting from the consensus — a level of internal division not seen since the early 1990s. Minneapolis Fed President Neel Kashkari has even floated the possibility of further rate increases, citing the Hormuz conflict as an upside risk to inflation.

April's consumer price index landed hot, extinguishing any remaining hopes for rate cuts in 2026. A number of traders are now betting on a hike before year-end. Interest-rate futures are pricing in a hold at the June meeting, and as long as the Fed remains on hold, silver lacks the monetary spark that typically lifts precious metals. The metal's industrial demand provides a floor, but without a dovish pivot, the ceiling stays low.

Geopolitics: A Game of Two Halves

The diplomatic track between the US and Iran has offered a flicker of hope. Reports indicate that Washington and Tehran have agreed in principle to a 60-day extension of a ceasefire, with Iran committing to clear maritime mines within 30 days of implementation — a move that could ease passage through the Strait of Hormuz. But the deal is far from final. According to reports, the Trump administration is seeking to renegotiate key conditions, including the strait's regulatory framework and the removal of highly enriched uranium from Iran. A formal signing has yet to take place.

Complicating matters, Israel has escalated its operation in Lebanon, ordering troops to advance further despite a cease-fire that has been in place for over six weeks. Hezbollah has responded with hundreds of projectiles. Each new round of fighting threatens to derail the US-Iran talks and keep the geopolitical risk premium embedded in silver prices.

The Strait of Hormuz remains largely blocked since February 28, following a US-Israeli air campaign that killed Iran's Supreme Leader Ali Khamenei. Some 20% of the world's oil and 20% of its liquefied natural gas usually pass through the waterway, which before the conflict saw roughly 3,000 transits a month. That number has collapsed to about 5% of normal traffic.

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A Paradox in Prices

Oil prices spiked above $109 a barrel on the conflict, feeding inflation fears. Yet silver and gold have recently traded like risk assets, showing a strong negative correlation to crude. Investors worry that higher energy costs will force the Fed to keep rates elevated, which in turn pressures non-yielding precious metals. That dynamic has kept silver range-bound even as industrial demand booms.

The June forecast range sits between $72 and $88 an ounce, with a base case of $80 to $85. A resolution of the Iran tensions combined with a weaker dollar could spark a sharp rebound toward $90. Conversely, if industrial demand cools and the Fed turns even more hawkish, a test of $70 becomes plausible.

For now, silver's price is being determined by the interplay of a historic structural deficit and stubborn macro headwinds. The deficit ensures that any easing of monetary or geopolitical pressure will likely result in a powerful rally — but until then, the metal is anchored by forces that show no sign of loosening their grip.

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