Silver Falls 13% in One Month, Geopolitical Risks at Maximum, Why Has Silver's Safe-Haven Properties Gone "Invisible"?

Cailian Press, March 17 (Editor: Li Xiang) Since the escalation of conflicts between the U.S., Israel, and Iran at the end of February, precious metal prices have not experienced the expected unilateral rise as traditional safe-haven logic suggests. Instead, they only briefly surged at the beginning of the conflict, then showed sharp volatility and overall downward pressure. Silver has been particularly weak.

Cailian Press notes that as of March 16, COMEX silver futures have fallen a total of 13.17% in March, far exceeding the 4.51% decline in COMEX gold during the same period. The main contract of Shanghai silver futures even dropped over 8% intraday on March 16, reaching a low of 19,800 yuan per kilogram, a new low in one month.

Several market analysts point out that the market’s widely expected safe-haven property of precious metals has “disappeared,” mainly due to a fundamental shift in trading logic. The market has shifted from “hedging demand” to concerns over stagflation and cooling expectations for monetary easing.

Some opinions suggest that amid rising geopolitical risks, countries are beginning to stockpile strategic key materials to prepare for potential conflicts. Under multiple factors, the world is entering a new super cycle of commodities. This year, sector divergence is becoming more pronounced, and investors should learn to adapt to changes and find investment opportunities amid volatility.

Reconstructed Trading Logic: Why Is Silver Falling More Than Gold?

Recently, under the main theme of market pricing of the current geopolitical conflict, Shanghai silver futures’ main contract plummeted over 8% on the 16th, reaching a low of 19,800 yuan per kilogram. COMEX silver futures performed even worse, with a much larger correction than gold. As of March 16, COMEX silver futures had fallen over 13% for the month, while COMEX gold only declined 4.51%.

Market insiders believe that the complete switch in trading logic is the core reason for the failure of silver’s safe-haven attributes in this round. “External disturbances affecting future economic uncertainty have shifted market demand for precious metals from safe-haven to concerns over stagflation and the outlook for monetary easing.”

“U.S. February core CPI year-on-year was 2.5%, and month-on-month was 0.2%, still above the Federal Reserve’s 2% policy target. Since March, high oil prices have had a significant short-term impact on PPI and overall CPI. In the medium term, attention should be paid to stagflation risks,” said Zhao Wei, Chief Economist at Shenwan Hongyuan. According to his estimates, every $10 increase in oil prices could raise the U.S. overall CPI and core CPI by 24-28 basis points and 4-7 basis points respectively. High oil prices also drive PPI inflation (with a correlation coefficient of 0.57 between oil prices and U.S. PPI).

“Especially for U.S. macroeconomic data in March and April, when inflation base effects are low, domestic demand remains much weaker than in 2021-2022. The erosion of residents’ income by high oil prices could be more pronounced,” Zhao Wei added.

Latest interest rate futures markets show that investors have largely ruled out a rate cut by the Federal Reserve in March. Expectations for rate cuts in 2026 have fallen below once every 25 basis points. The sharp cooling of monetary easing expectations has directly been negative for precious metals.

Meanwhile, the situation in the Strait of Hormuz has instead activated the safe-haven appeal of the U.S. dollar, with large capital flows back into the dollar market. The dollar index and U.S. Treasury yields are rising in tandem, directly increasing the holding costs of precious metals and reducing the attractiveness of interest-free assets.

“More importantly, as early as late January, when tensions in the Middle East were heating up, precious metals had already completed a rally. The market’s pricing of conflict risk was quite sufficient,” said the China First Futures team. After the conflict officially escalated in early March, speculative funds quickly adopted a ‘buy the rumor, sell the fact’ pattern, further accelerating the market decline.

Short-term Pressure on Silver

Many institutional analysts believe that silver’s decline far exceeds that of gold because its dual attributes have become a “double-edged sword” in the market.

Zhang Haoyun, senior researcher at CITIC Futures Research Institute’s macro research team, said that silver is still supported by the overall safe-haven sentiment for precious metals, but its industrial properties make it more sensitive to growth expectations. Currently, the market is trading geopolitical risks and dollar fluctuations on one hand, and worrying about the impact of high oil prices on global demand on the other. Therefore, silver is likely to underperform gold.

It is reported that industrial demand for silver accounts for about 50%, covering sectors such as new energy, AI infrastructure, and electronics chemicals. This makes it caught in a dilemma amid the current market logic shift.

Zhang further pointed out that if the Fed’s rate cut expectations continue to shift later and real interest rates stay high, it will exert some pressure on high-volatility assets. For silver to break higher, clearer signals of liquidity easing are needed. In a stagflation environment, gold tends to be more defensive, while silver is caught in a “dual tug-of-war” between benefiting from precious metal attributes and suffering from industrial demand weakness. Its price elasticity is more reflected in intraday and phased volatility rather than smooth unilateral upward movement.

UBS warned in a March 13 report that if the Strait of Hormuz blockade continues until the end of April, crude oil prices could break through $150 per barrel. The Fed’s rate cut expectations would be further delayed, and silver is likely to remain volatile or weak.

Zhang also said that from an operational perspective, short-term silver is expected to continue high volatility. If oil prices keep rising but global risk appetite declines, the gold-silver ratio could further increase. Conversely, if the dollar continues to fall and market expectations for medium-term easing are re-priced, silver’s elasticity could be reactivated.

Some futures industry insiders believe that currently, it is better to adopt a cautious approach to silver, focusing on Fed policy developments and whether the situation in the Strait of Hormuz might trigger a recession. However, some analysts remain optimistic. “What matters for precious metals is long-term value. The Russia-Ukraine conflict and the Iraq war both occurred two years into economic recessions, yet the overall economy continued to grow, and oil shocks did not directly trigger recessions,” said a leading futures industry figure.

Huang Hao, Chief Investment Officer of Lianhua Asset Management, recently proposed the concept of a super cycle in commodities. He pointed out that the explosion of the AI industry and the global energy transition should sustain the industrial demand for silver, which is the core support for prices. Although short-term markets are more concerned about stagflation weakening industrial demand, in the medium to long term, geopolitical risks have highlighted the arrival of a super cycle in commodities.

“Over the past decade, the commodities sector has been under-invested for a long time. The intensification of geopolitical risks has amplified the strategic importance of key materials. This round of raw material demand has exceeded market expectations,” said Huang Hao.

The World Silver Survey report from February also clearly states that from 2021 to 2025, the global silver market has experienced five consecutive years of supply shortages. In 2026, the sixth consecutive year of supply-demand deficit is expected, with a shortfall of 67 million ounces, and the price center still has upward potential.