During Thursday's Asian trading session, spot silver (XAG/USD) continued its recent weak performance, with the price falling to around $56.90 per ounce, marking a decline for the third consecutive day. Market expectations for future Federal Reserve interest rate hikes continue to strengthen, coupled with the US Dollar Index maintaining high levels, collectively exerting significant pressure on silver.
The most significant recent change in financial markets stems from the repricing of Federal Reserve policy expectations. Although international oil prices retreated sharply earlier due to easing tensions in the Middle East, market concerns about US inflation risks have not completely dissipated. Federal Reserve Chairman Kevin Warsh reiterated in recent remarks that the Fed remains firmly committed to controlling inflation and emphasized that the US economy overall continues to operate robustly, which the market interpreted as a hawkish signal.
As the Federal Reserve continues to signal a tightening stance, investors are beginning to increase their bets on future rate hikes. According to the CME FedWatch Tool, the market currently estimates the probability of at least one more Fed rate hike by year-end has risen to 83.1%, indicating that market expectations for the duration of the high-interest-rate environment have significantly lengthened. For silver, a high-interest-rate environment typically constitutes an unfavorable factor. Since silver itself does not generate interest income, when market interest rates rise, investors tend to favor allocating to bonds and money market instruments that can provide fixed income, thereby diminishing the appeal of precious metals.
It is noteworthy that significant changes have occurred in the global energy market recently. With progress in US-Iran peace talks, international crude oil prices have retreated to levels around those before the conflict erupted. The normalization of transport through the Strait of Hormuz and the gradual resumption of Iranian energy exports have effectively alleviated previous market fears about energy supply disruptions.
Under normal circumstances, falling oil prices help reduce future inflationary pressures and may lessen the necessity for the Federal Reserve to continue tightening policy. However, the current market is more focused on the inflation data itself and the Fed's policy stance, so the positive impact of falling energy prices on silver is relatively limited. The market's next focus is on the upcoming release of the US May Personal Consumption Expenditures (PCE) Price Index data. As one of the Fed's most closely watched inflation indicators, the PCE data will directly influence investors' judgments about future interest rate policy.
The market expects the US May PCE annual rate to rise to 4.1% from the previous 3.8%; the core PCE annual rate is forecast to rise to 3.4% from 3.3%. If the data continues to rise, the likelihood of the Federal Reserve maintaining a more hawkish stance will significantly increase, thereby exerting new downward pressure on silver. Simultaneously, the US Dollar Index maintaining high levels is also a key reason for the sustained pressure on silver. Currently, the Dollar Index remains close to the more-than-one-year high of 101.80 it reached previously. Since silver is priced in US dollars, a stronger dollar means higher purchasing costs for holders of other currencies, which suppresses global demand and weakens price performance.
From a market sentiment perspective, capital continues to flow into US dollar assets and fixed-income markets, with the precious metals sector overall performing weakly. Until the Federal Reserve's policy direction clearly shifts towards easing, the silver market may still face significant pressure in the short term.
Analyzing the Daily Chart Structure
From the daily chart structure, after falling for three consecutive days, silver has dropped near $56.90, with the overall trend presenting a clear bearish pattern. The previous consolidation platform at higher levels has been effectively broken, and the market's center of gravity continues to shift lower. The current price is trading below the main moving average system, indicating a bearish medium-term trend. Key support levels to watch below are the $56.00 and $54.50 areas. A further break below these could open the path for a move towards the $52.00 area. The first resistance level above is located near $58.50, with further resistance seen at $60.00 and $61.80. Until the price regains a foothold above $60, the overall trend should still be viewed with a bearish bias.
Observing the 4-Hour Chart Level
Observing from the 4-hour chart level, silver is operating within a descending channel, with short-term bearish momentum still dominating. The price continues to be suppressed by short-term moving averages, reflecting weak market rebound intentions. However, after the consecutive declines, some short-term technical indicators are approaching oversold territory, suggesting the pace of decline may slow. If the price can hold the $56.00 support and break above $58.50 again, it may trigger a technical rebound and test the $60.00 mark. Conversely, if it breaks below $56, bears may further extend their advantage, pushing the price towards $54.50 or even lower levels. Overall, the room for a short-term rebound appears limited, and the trend remains biased to the downside.
Key Factors Behind the Recent Weakness
The core reason for silver's recent sustained weakness lies in the market's significantly heightened expectations for further Federal Reserve rate hikes. Although falling oil prices have alleviated some inflationary pressure, investors are more focused on US economic resilience and future changes in interest rate levels. Against the backdrop of a high US Dollar Index and rising interest rate expectations, the appeal of silver as a non-yielding asset is significantly diminished. In the short term, the US PCE inflation data will be a key factor influencing market direction. If inflation data continues to exceed expectations, silver may extend its corrective move; if signs of cooling inflation emerge, it could prompt the market to reassess rate hike expectations and provide silver with a phase of recovery opportunity.
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