Silver (XAG/USD) extended its rally on Monday, trading around $84.85 at the time of writing, marking a 5.60% increase on the day and reaching a fresh two-month high [1]. The surge is attributed to robust safe-haven demand as geopolitical tensions escalate in the Middle East, particularly due to the ongoing conflict between the United States and Iran. US President Donald Trump rejected Iran’s latest peace proposal, labeling it 'totally unacceptable,' while negotiations over the Strait of Hormuz remain at an impasse. These developments have heightened fears of prolonged disruptions to global energy flows, fueling volatility across commodity markets and supporting safe-haven assets such as silver [1].
Rising energy prices are also reviving inflation concerns, prompting investors to anticipate a higher-for-longer interest rate environment. US Nonfarm Payrolls (NFP) data released on Friday showed an increase of 115K in April, surpassing market expectations of 62K, while the Unemployment Rate remained steady at 4.3% [1]. These figures provide the Federal Reserve with greater flexibility to maintain its restrictive monetary policy stance. According to the CME FedWatch tool, markets now see only limited chances of near-term rate cuts, with some investors even considering the possibility of another rate hike before the end of the year [1].
Despite the typically negative impact of higher interest rates on non-yielding assets, silver continues to benefit from strong industrial demand. Sectors such as photovoltaics, semiconductors, artificial intelligence infrastructure, and electric vehicles are cited as major structural drivers for silver demand [1]. Investment demand remains firm as well, with several analysts expecting the global silver market to remain in deficit this year, projecting that industrial demand will exceed available supply for another consecutive year [1].
CONCLUSION
Silver's rally to a two-month high is driven by escalating US-Iran tensions, robust industrial demand, and revived inflation concerns. Despite a restrictive monetary policy environment, both safe-haven and industrial demand are supporting silver prices, with analysts expecting a continued market deficit.