TD Securities’ commodity team highlights that Silver has already fallen sharply since the conflict began and could face further downside if inflation slows growth and raises carry costs. They warn that weaker industrial demand and higher rates may erode the projected deficit, though a later-year recovery is expected once the Oil shock fades and structural supply constraints reassert themselves.

Industrial metal faces cyclical headwinds

"With that, inflation expectations would almost certainly rise further, and markets would once again grow increasingly concerned about stagflation and higher interest rates across the yield curve. These concerns have already weighed heavily on precious and base metals. Gold is down roughly $700/oz since the conflict began (–13%), silver has fallen $21/oz (–22%), and copper has remained flat despite a deep market deficit."

"Silver is also likely to drop sharply if inflation causes the economy to slow and increases the cost of carry. A weak economy would reduce industrial demand, while higher rates would erode investor interest."

"Together, these forces could erode our currently projected deficit and move the market toward balance, suggesting prices may gravitate closer to the marginal cost of production. However, once the oil shock has passed, a structurally weak supply side suggests that a recovery in industrial and investment demand could materially widen deficits and push prices higher late in the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)