During the Asian trading session on Tuesday, spot silver (XAG/USD) continued its downward trend, falling to around $63.90 per ounce, a notable retreat from the previous day's highs. The precious metals sector is facing significant pressure as markets reassess the global inflation outlook and the future path of U.S. monetary policy.
The core factor influencing market sentiment remains expectations for U.S. monetary policy. Last week, the Federal Reserve announced it would keep the federal funds rate unchanged in the range of 3.50%-3.75%. However, the latest economic projections and remarks made by new Chair Kevin Warsh during his first policy meeting were notably hawkish. The market perceives that the Fed's concerns about inflation risks have increased and it is in no rush to signal a shift towards easing. Consequently, U.S. Treasury yields remain elevated, and the U.S. dollar index is trading near one-year highs. As a non-yielding asset like gold, silver's appeal is typically diminished in a rising interest rate environment.
The interest rate futures market indicates that investors have almost fully priced in expectations for a 25-basis-point rate hike by the Fed at its September meeting, with some funds even beginning to bet on action as early as next month. These shifting expectations continue to weigh on the precious metals market. Simultaneously, signs of easing tensions in the Middle East are further eroding demand for safe-haven assets. U.S. Vice President Vance stated that negotiations between the U.S. and Iran, taking place in Switzerland, have made "significant progress." Although some differences remain, the overall consultation process is proceeding more smoothly than the market had anticipated.
Previously, Vance confirmed that Iran had agreed to once again allow International Atomic Energy Agency inspectors to enter the country to conduct their work. Iranian Foreign Minister Abbas Araghchi later also stated that the dialogue had achieved important results. The market views these positive signals as helpful in promoting a broader agreement in the future. In fact, since the escalation of the Middle East conflict in late February, the precious metals market has been profoundly affected by energy price volatility and shifts in global inflation expectations. Due to disruptions to shipping security in the Strait of Hormuz, international oil prices surged significantly, raising concerns that major central banks might maintain high-interest-rate policies for an extended period to curb inflation, thereby exerting sustained pressure on gold and silver.
Recent developments have introduced new changes. The United States has granted Iran a 60-day crude oil export license, allowing it to resume some oil sales activities on the international market. This move has significantly improved expectations for global energy supply and led the market to anticipate a gradual easing of tight crude oil supply conditions in the coming months. As supply recovery expectations strengthen, international oil prices continue to decline, and market concerns about future inflationary pressures have also cooled. For silver, a decline in inflation expectations means its importance as an inflation hedge is diminishing, further weakening investment demand.
However, the market remains cautious about whether the U.S.-Iran agreement will ultimately be smoothly implemented. Key issues such as arrangements for navigation in the Strait of Hormuz, the Iranian nuclear issue, and frozen assets still present significant disagreements. Therefore, geopolitical risks have not completely exited the market's view, which may limit the downside for silver to some extent.
Technical Analysis
From a technical perspective, silver's daily chart shows a pattern of correction from higher levels. After breaking below the key $65 level, the short-term advantage for bears has expanded. The MACD indicator is operating below the zero line, with the green momentum bar continuing to expand, indicating that selling pressure still dominates the market. Key resistance levels to watch above are around $66.00, $67.50, and $69.00. If the price cannot reclaim and hold above $66, the potential for a rebound is expected to be limited. Support levels below are located near $63.50, $62.50, and $60.00. On the 4-hour chart, silver is trading within a clear descending channel. The MACD lines remain below the zero line, indicating weak short-term rebound momentum. After consecutively breaking below several short-term moving averages, market sentiment has turned cautious. If the $63.00 support level is breached, the price could further test the $62.50 area. Conversely, a break above the $66.00 resistance could help alleviate the current downward pressure. In the short-term structure, until a new stabilization signal forms, silver is likely to maintain a predominantly weak and volatile trend.
Market Outlook
The current silver market is being influenced simultaneously by the Fed's hawkish policy expectations and the easing of Middle East tensions. As market expectations for rate hikes intensify and expectations for energy supply recovery strengthen, precious metals are generally under pressure. However, geopolitical risks have not been completely eliminated, and safe-haven demand could resurge if the situation becomes volatile again. In the short term, silver's trend remains biased towards weak consolidation. Investors should closely monitor the impact on market sentiment from speeches by Fed officials, U.S. inflation data, and the progress of U.S.-Iran negotiations.
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