Silver (XAG/USD) surged to record highs in recent sessions, driven by geopolitical tensions and safe-haven demand. However, the metal has retraced sharply, correcting to near $86.50 as Iran eased civil unrest concerns and assured the US it will halt executions of protesters. PrimeLuno brokers outline the essential details of the topic with precision and insight.
Coupled with expectations that the Federal Reserve (Fed) will hold interest rates steady, the market is reassessing Silver’s near-term direction, setting the stage for potential consolidation or further volatility
Silver Price Drops on Easing Geopolitical Tensions
Silver (XAG/USD) fell sharply by almost 6%, to near $86.50 during Asian trading on Thursday, retreating from its all-time high of $93.51 recorded on Wednesday. The pullback comes as geopolitical tensions in the Middle East ease, particularly after Iranian authorities assured the US President that it will halt the execution of protesters amid civil unrest.
The previous surge in safe-haven demand for precious metals like Silver was largely driven by fears of US military retaliation following Iran’s harsh crackdown on dissenters. The assurance from Tehran that no large-scale civil executions are planned has mitigated the geopolitical risk premium, prompting a correction in XAG/USD.
While market sentiment remains cautious, the recent announcement reduced the urgency for investors to seek risk-off assets, resulting in profit-taking from positions entered during the recent all-time highs.
Fed Outlook Dampens Silver’s Momentum
In addition to geopolitical developments, monetary policy expectations are weighing on Silver. Analysts now anticipate that the Federal Reserve (Fed) will maintain its interest rates during the upcoming policy meeting, signaling a pause in monetary easing.
The US Consumer Price Index (CPI) data released on Tuesday confirmed that inflationary pressures remain sticky, reinforcing the Fed’s stance. As a result, the appeal of Silver as an inflation hedge is somewhat tempered, contributing to the recent retracement.
Looking ahead, market participants are eyeing the announcement of the new Fed Chair as a potential catalyst for XAG/USD volatility. The US President has indicated that the successor to Jerome Powell will be named later this month, with contenders including White House Economic Adviser Kevin Hassett, former Fed Chair Kevin Warsh, and current Fed Governors Christopher Waller and Michelle Bowman.
The selection of the new Fed Chair could influence monetary policy expectations, which, in turn, may impact Silver prices in the short-to-medium term.
Technical Analysis of Silver
From a technical perspective, XAG/USD is showing signs of consolidation after its recent surge. The pair trades near $86.50, significantly above the 20-day Exponential Moving Average (EMA) at $77.48, which reinforces the overall upward bias. The rising 20-day EMA continues to act as dynamic support, keeping pullbacks contained and supporting bullish momentum.
The 14-day Relative Strength Index (RSI) currently sits at 68, near overbought territory. This indicates that while momentum remains strong, the upside could be capped if the RSI stalls or begins to reverse from extreme levels. Traders may look for a short-term pullback or consolidation phase before resuming the bullish trend.
As long as XAG/USD remains above the 20-day EMA, bulls retain control, and a resumption of the uptrend remains the base case scenario. On the other hand, a daily close below the 20-day EMA would signal a loss of bullish momentum, shifting the outlook toward consolidation and potentially paving the way for a pullback toward the January 8 low at $73.85.
Outlook and Market Implications
The Silver market is now navigating a complex interplay of geopolitical developments and monetary policy expectations. The recent retracement highlights how sensitive XAG/USD is to both risk sentiment and US interest rate projections.
Investors should closely monitor Iran’s domestic situation, as any resurgence in civil unrest or executions could trigger renewed safe-haven demand for precious metals. Additionally, US-Iran relations remain critical, since renewed tensions or threats of military action would likely push Silver and Gold prices higher.
The Fed policy signals are also influential; the appointment of a new Fed Chair or shifts in interest rate policy could significantly affect XAG/USD. Finally, technical levels deserve attention, with the 20-day EMA and RSI serving as key indicators to identify potential pullbacks or continuation patterns.
In summary, Silver’s correction to $86.50 reflects a temporary easing of geopolitical risks combined with steady US monetary policy expectations. While the bullish trend remains intact, market participants should remain vigilant for short-term volatility, especially as the Fed Chair succession and Iranian developments unfold.
Conclusion:
The XAG/USD market has shown that geopolitics and monetary policy continue to drive volatility in precious metals markets. The recent 6% correction from $93.51 to $86.50 underscores the sensitivity of Silver to risk sentiment, while technical indicators suggest that the long-term bullish trend remains intact as long as support levels hold.
