Down 13% in one month, geopolitical risks are at their peak. Why is silver's safe-haven attribute "invisible"?

Since the conflict between the U.S. and Iran escalated at the end of February, precious metal prices have not experienced the unidirectional rise expected by traditional safe-haven logic; instead, they only saw a brief spike at the beginning of the conflict, followed by significant fluctuations and overall downward pressure. Among them, silver’s performance has been particularly weak.

As of March 16, COMEX silver futures have accumulated a decline of 13.17% in March, far exceeding the 4.51% drop in COMEX gold during the same period. The main contract for Shanghai silver futures even fell over 8% during trading on March 16, hitting a low of 19,800 yuan per kilogram, a new low in one month.

Several market analysts pointed out that the expected safe-haven properties of precious metals have “disappeared,” with the core reason being a fundamental shift in trading logic. The market’s view of precious metals has shifted from “safe-haven demand” to concerns about “stagflation fears and a cooling expectation of monetary policy easing.”

Some opinions suggest that as geopolitical risks become more pronounced, countries have begun to stockpile strategic key materials to address potential conflict risks. Under the influence of multiple factors, the world is entering a super cycle of commodities. This year, the divergence in the commodity sector has become increasingly significant, and investors should learn to adapt to changes and uncover investment opportunities amidst volatility.

Reconstructing trading logic: Why is silver falling harder than gold?

Recently, under the market’s pricing of the current geopolitical conflict, the main contract for Shanghai silver futures dropped over 8% on the 16th, hitting a low of 19,800 yuan per kilogram. COMEX silver futures showed even weaker performance, with a decline far exceeding that of gold. As of March 16, COMEX silver futures have accumulated a drop of over 13% this month, while COMEX gold’s cumulative decline was only 4.51%.

Market participants believe that the complete switch in market trading logic is the core reason behind the failure of silver’s safe-haven properties in this round. “The impact of external disturbances on future economic uncertainties has caused the market’s view of precious metals to shift from safe-haven demand to concerns over stagflation and the shift in expectations for monetary policy easing.”

“The U.S. core CPI in February rose 2.5% year-on-year and 0.2% month-on-month, still above the Federal Reserve’s 2% policy target. The high oil prices since March have significantly affected PPI and overall CPI in the short term, and the risk of stagflation needs to be closely monitored,” said Zhao Wei, chief economist at Shenwan Hongyuan. According to his calculations, every 10% increase in oil prices could raise the overall CPI and core CPI in the U.S. by 24-28 basis points and 4-7 basis points, respectively. High oil prices will also drive PPI inflation (the determination coefficient between oil prices and U.S. PPI is as high as 0.57).

“Especially for the U.S. macro data in March and April, which have low bases for inflation, the current resilience of U.S. domestic demand is far weaker than in 2021-2022. The erosion of high oil prices on household income may be even more significant,” Zhao Wei stated.

The latest interest rate futures market shows that investors have virtually ruled out the possibility of a rate cut by the Federal Reserve in March, and expectations for rate cuts in 2026 have dropped to less than one 25 basis point cut. The significant cooling of expectations for monetary policy easing has also created direct bearish pressure on precious metals.

At the same time, the situation in the Strait of Hormuz has activated the dollar’s safe-haven properties, leading to a large inflow of funds back into the dollar market. The dollar index and U.S. Treasury yields have risen in tandem, directly increasing the holding costs of precious metals and reducing the appeal of non-interest-bearing assets.

“More critically, as early as the end of January, when expectations of Middle Eastern conflicts began to rise, precious metals had already completed a round of price increases in advance. The market’s pricing of conflict risks has been quite adequate,” stated the Zhongtai Futures team. After the conflict officially escalated in early March, speculative funds began to exhibit a “buy the expectation, sell the fact” trend, further exacerbating the market’s decline.

Short-term pressure on silver

According to multiple institutional analysts, silver’s drop exceeding that of gold is primarily due to its dual attributes acting as a “double-edged sword” in the market.

Zhang Haoyun, a senior researcher at the macro research team of CITIC Futures, stated that while silver is driven by overall safe-haven sentiment in precious metals, its price center remains supported. However, its industrial attributes make it more sensitive to growth expectations. Currently, the market is trading geopolitical risks alongside dollar fluctuations, while also worrying about high oil prices impacting global demand, leading to silver’s performance likely being weaker than that of gold.

It is reported that industrial demand for silver accounts for about 50%, covering fields such as renewable energy, AI infrastructure, and electronic chemicals, which puts it in a dilemma amid this round of market logic shifts.

Zhang Haoyun further pointed out that if expectations for a rate cut by the Federal Reserve continue to be pushed back while real interest rates remain high, this will exert some pressure on high-volatility assets. For silver to break upward, more explicit signals of liquidity easing will be needed. In a stagflation environment, gold leans towards defensive positioning, while silver is caught in a dual tug-of-war between benefiting from precious metal attributes and being harmed by industrial properties. Its price elasticity is more reflected in amplified intraday and phased volatility rather than a smooth upward trend.

In a report released on March 13, UBS warned that if the blockade of the Strait of Hormuz continues until the end of April, oil prices could exceed $150 per barrel, and expectations for a rate cut by the Federal Reserve will be further postponed. Silver will likely maintain wide fluctuations or even a weak consolidation.

Zhang Haoyun also stated that from an operational perspective, silver is expected to continue its high-volatility fluctuation pattern in the short term. If oil prices continue to rise but global risk appetite declines, the gold-silver ratio may still have room for further increase. If the dollar continues to fall and the market re-trades mid-term easing expectations, then silver’s elasticity may be released again.

Some futures industry insiders believe that it is advisable to observe silver more and act less at the moment, focusing on the Federal Reserve’s policy trends and whether the situation in the Strait of Hormuz will trigger an economic recession. However, some analysts remain relatively optimistic. “What precious metals value is long-term; the Russia-Ukraine conflict and the Iraq War occurred two years after economic recessions this century, while the overall economy continues to grow. Oil price shocks do not directly trigger economic recessions,” stated an insider from a leading futures firm.

Lianhua Asset Management’s Chief Investment Officer, Hong Hao, recently also proposed the concept of a super cycle in commodities. He noted that the explosion of the AI industry and the global energy transition should continue to release industrial demand for silver, becoming a core support for prices. Even though the market is currently more worried about stagflation weakening silver’s industrial demand, in the medium to long term, under the highlighted geopolitical risks, the super cycle of commodities has already arrived.

“For the past decade, the commodity industry has been in a state of long-term investment shortfall. Geopolitical risks have amplified the reserve value of strategic key materials. The demand for raw materials in this round has exceeded market expectations,” Hong Hao stated.

The World Silver Association’s February report also clearly indicated that from 2021 to 2025, the global silver market has experienced a supply shortage for five consecutive years, and 2026 will mark the sixth consecutive year of supply and demand deficit, with an annual gap expected to reach 67 million ounces, indicating that its price center still has upward momentum.