Silver Price Analysis: Profit-Taking and Market Uncertainty

Key Points

• Silver prices have dropped as traders take profits amidst tariff uncertainty and hawkish Federal Reserve commentary.
• Fed officials are pushing back against rate cuts, strengthening the dollar and reducing foreign demand for silver.
• Weakening industrial demand from China is adding further pressure on silver prices, despite a year-to-date increase of nearly 24%.

Market Overview

On Tuesday, spot silver prices fell as investors engaged in profit-taking following a recent rally. The decline is attributed to several factors, including shifting monetary policy, tariff uncertainties, and a muted safe-haven response to ongoing geopolitical tensions in the Middle East.

Impact of Federal Reserve Policies

The Federal Reserve's stance has significantly influenced silver prices. Chicago Fed President Austan Goolsbee emphasized the need to maintain interest rates until inflation is controlled, which has been echoed by other Fed officials. This hawkish sentiment has led to a stronger U.S. dollar, thereby capping foreign demand for dollar-denominated silver. The probability of a rate cut in June has decreased from 50.2% to 43.9%, contributing to a slight increase in short-term Treasury yields.

Tariff Uncertainty

Recent developments regarding tariffs have added to market confusion. Following a Supreme Court ruling that overturned Trump's use of the International Emergency Economic Powers Act, the White House announced a new 15% global tariff. This uncertainty regarding the duration and impact of tariffs is a key factor affecting silver prices.

Geopolitical Tensions

Despite rising tensions in the Middle East, silver has not seen the same benefits as gold. The ongoing diplomatic efforts between the U.S. and Iran have not significantly impacted silver prices, which are more sensitive to industrial demand than to geopolitical crises.

Chinese Industrial Demand

Weakness in the Chinese industrial sector has compounded the selling pressure on silver. The recent profit-taking after a 4% price rally has further contributed to the decline. However, silver remains up nearly 24% year-to-date, and any breakdown in Iran nuclear negotiations or new tariff shocks could lead to increased demand and price spikes.

Technical Outlook

As of the latest session, silver (XAG/USD) is trading at $87.21, down $0.98 or -1.10%. The market is currently above key support levels, including a 50% retracement level at $83.61 and a 50-day moving average at $82.72. Maintaining above these levels could allow for a resumption of the rally, with short-term targets set at $92.20 and $92.87. Conversely, a failure to hold the 50-day moving average could lead to a return to a lower trading range with support at $74.63.