During Monday's Asian trading session, spot silver maintained a weak consolidation pattern, with prices hovering around $66.92 per ounce. Despite escalating geopolitical risks, market concerns over inflation and interest rate prospects have overshadowed the support from safe-haven demand for silver, leading to a second consecutive day of price pullback.
The primary factors currently influencing the precious metals market stem from developments in the Middle East and shifts in U.S. monetary policy expectations. Over the weekend, tensions in the Middle East escalated once more. Recent reports indicate Israel launched strikes on multiple military targets within Iran, in response to Iran's earlier missile launches targeting northern Israel.
Iran had previously launched several rounds of missiles toward Israel and warned of larger-scale responses if Israel continued to expand its military operations in Lebanon. While Israel stated that the incoming missiles were successfully intercepted without causing casualties, the escalation of the conflict has significantly heightened market concerns about the situation spiraling out of control.
The heightened geopolitical risks were first reflected in the energy markets. Concerns that energy transport through the Strait of Hormuz could be persistently affected, leading to tighter global crude oil supply, have pushed international oil prices notably higher, rapidly expanding the risk premium in energy markets.
For the silver market, rising oil prices are not entirely positive news. On one hand, higher energy prices could push up global inflation levels. On the other hand, resurgent inflation might compel major central banks to maintain high-interest rate policies for a longer duration. As silver is a non-yielding asset, a high-interest-rate environment typically diminishes its investment appeal. Concurrently, the performance of the U.S. labor market continues to reinforce market expectations for a hawkish Federal Reserve policy stance.
Data released by the U.S. Bureau of Labor Statistics showed that U.S. non-farm payrolls increased by 172,000 in May, significantly higher than the market expectation of 85,000. Although slightly below the revised prior figure of 179,000, the overall data indicates the labor market remains in a state of robust expansion. Furthermore, the U.S. unemployment rate held steady at 4.3% in May, aligning with market expectations and further reflecting the overall resilience of the U.S. economy. Following the release of the strong employment data, the market swiftly adjusted its outlook for future monetary policy.
Investors believe that U.S. economic growth and labor market performance remain strong, and coupled with the potential for rising energy prices to rekindle inflation, the likelihood of the Federal Reserve pivoting to a looser policy in the near term has diminished significantly. As market expectations for interest rate hikes have intensified, U.S. Treasury yields and the U.S. Dollar Index have found support, thereby putting pressure on the precious metals market.
Although silver possesses the dual attributes of a precious metal and an industrial metal, at the current stage, the market is more focused on the impact of interest rate factors on investment demand. Consequently, silver's short-term performance has been notably weaker than some risk assets. From a capital flow perspective, some investors have recently opted to increase their allocation to U.S. dollar-denominated assets to hedge against potential market volatility risks. A stronger U.S. dollar typically reduces the attractiveness of dollar-priced precious metals for overseas buyers, which is another significant factor limiting silver's rebound.
From a technical perspective, spot silver's daily chart shows the price entering a corrective phase after testing recent highs. The price remains above the key medium and long-term moving averages, indicating the overall uptrend has not fundamentally reversed, but short-term downward pressure has increased. The MACD indicator is gradually showing signs of a bearish crossover at high levels, with the red histogram continuing to contract, signaling a weakening of upward momentum. The RSI indicator has retreated from overbought territory to around 55, reflecting the market's entry into a corrective phase. Key support zones to watch below are around $66.50 and $65.00; a break below these levels could lead to a further test of the area near $63.80. Important resistance levels above are located near $68.80 and $70.00.
Observing the 4-hour chart, silver prices have recently formed a structure of high-level oscillation and decline. Short-term moving averages are gradually flattening and showing signs of turning downward, indicating a weakening of bullish momentum. The MACD indicator is operating near the zero line, suggesting the market is in a phase of directional indecision. If the U.S. dollar continues to find support from rate hike expectations, silver prices may further decline to test the $66 region. Conversely, if geopolitical risks continue to expand and stimulate safe-haven demand, silver prices still have the potential to challenge the resistance area above $69 once more.
Currently, the silver market is caught in a tug-of-war between safe-haven demand and interest rate pressures. The escalation of the Middle East situation would typically provide support for precious metals, but the inflation concerns triggered by rising energy prices and the rate hike expectations fueled by strong U.S. employment data are eroding the appeal of silver as a non-yielding asset. In the short term, Federal Reserve policy expectations will likely continue to dominate market direction. Going forward, investors need to closely monitor U.S. inflation data, remarks from Federal Reserve officials, movements in the U.S. Dollar Index, and developments in the Middle East. If expectations for high-interest rates continue to strengthen, silver may extend its correction. If safe-haven sentiment further intensifies, it could provide new upward momentum for silver prices.
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