During Monday's Asian trading session, the price of silver (XAG/USD) continued its downward correction, falling to around $75.30 and marking its third consecutive day of decline. Current market concerns about a resurgence in global inflation are weighing on precious metals, while sustained dollar strength is further diminishing silver's appeal.
Recent escalations in Middle East tensions have driven a rapid rise in international crude oil prices. Due to increased risks to shipping through the Strait of Hormuz, markets fear that global energy supplies may tighten further, potentially reigniting global inflationary pressures. The surge in oil prices has intensified these inflation concerns, putting significant pressure on the precious metals market.
As energy costs continue to climb, markets are reassessing the future monetary policy paths of major central banks. In particular, recent hawkish signals from the U.S. Federal Reserve have notably shifted market expectations away from prior optimism about rate cuts. Several Fed officials have recently stated that controlling inflation remains the core objective of current policy, emphasizing that further rate hikes are possible if price pressures persist.
According to data from the CME FedWatch Tool, the market-implied probability of a further Fed rate hike in December has now risen to approximately 48%, compared to just about 14% a week ago. This market bet on prolonged higher interest rates is a key factor suppressing silver. The rapid repricing of Fed rate hike expectations has pushed the U.S. Dollar Index to its highest level since April.
As a non-yielding asset, silver typically becomes less attractive in a high-interest-rate environment. Concurrently, rising U.S. Treasury yields and a stronger dollar further dampen demand for dollar-denominated precious metals. Additionally, heightened global risk aversion is driving capital flows into dollar-denominated assets. With no agreement yet reached between the U.S. and Iran regarding a ceasefire and the reopening of the Strait of Hormuz, markets remain concerned about a further deterioration in the Middle East situation.
Increased safe-haven demand for the dollar continues to exert downward pressure on silver. Beyond these macro factors, recent adjustments by institutions to their silver supply and demand outlooks have also dampened market sentiment. Strategists at UBS recently revised down their forecast for silver investment demand, lowering it from a previous estimate of over 400 million ounces to approximately 300 million ounces. The institution believes that slowing industrial demand and increased mining supply are altering the silver market's supply-demand structure. Furthermore, UBS expects the global silver supply deficit to shrink significantly to about 60-70 million ounces, down from a previous estimate of roughly 300 million ounces. This downward revision in demand forecasts has heightened market concerns about an improving supply-demand balance.
Given that silver possesses attributes of both a precious metal and an industrial metal, changes in global manufacturing demand significantly impact its price. Current market worries center on the potential for a global economic slowdown to weaken industrial demand, thereby affecting silver's long-term upside potential.
From a technical analysis perspective, silver has broken below the support of its short-term moving averages on the daily chart, shifting the overall trend from a strong uptrend to a high-level consolidation. A key short-term support zone is forming around $74. A subsequent break below this level could lead to a further test of the $72 to $70 range.
Looking at the 4-hour chart, short-term bearish momentum remains dominant. The MACD indicator continues to operate below the zero line, while the RSI indicator is approaching oversold territory, indicating declining market risk appetite. However, given the ongoing tensions in the Middle East, some safe-haven buying support may still exist below the current price, suggesting that silver may maintain a high-volatility, range-bound pattern in the near term.
The silver market is currently influenced by the dual forces of "high-rate suppression" and "safe-haven demand support." While geopolitical risks theoretically favor precious metals, rising energy prices are boosting inflation expectations, which in turn strengthens market bets on the Fed maintaining high rates, thereby weakening silver's appeal. Additionally, institutional downgrades to silver investment demand forecasts are further dampening market sentiment. In the short term, the direction of the silver market will continue to be dominated by dollar movements, Fed policy expectations, and changes in global industrial demand.
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