Silver (XAG) Forecast: Bearish Silver Outlook as Oil Spike Hits Silver Market

Silver Drops 5.6% as Trump’s Speech Flips the Script Overnight

Spot Silver is under pressure early Thursday following President Trump’s latest speech on the U.S. – Iran war, late Wednesday night. XAG/USD fell sharply alongside gold and equities while crude surged. Those moves kind of give you a strong hint that the President said something about escalating or prolonging the war.

At 07:16 GMT, spot silver is trading $70.87, down $4.24 or -5.64%. The price action reflects a global repricing rather than just isolated weakness in silver alone.

Technical Outlook

Technically, silver flipped overnight to the bearish side of the major Fibonacci level at $74.63 after failing at $76.14 the previous session. The new minor range is $61.00 to $76.14. Its 50% level at $68.57 will determine its next move.

If $68.57 attracts buyers then traders will take another run at breaking out to the upside over $76.14. If the breakout is successful then we could see an acceleration into the 50-day moving average at $82.83 and the 50% level at $83.61. If the pivot at $68.57 fails to hold then the market could plunge into a support cluster formed by the $61.00 bottom, the 50% level at $60.83 or the 200-day moving average at $58.87.

Yields Are Up, the Dollar Is Up and Silver Is Paying for It

One of the clearest drivers behind silver’s decline is a rise in U.S. Treasury yields. Following Trump’s speech, the benchmark 10-year yield rose as markets pushed back expectations for rate cuts. For silver, this is negative news. Repricing of rate expectations tends to reduce demand for silver especially from the institutional side. The U.S. Dollar also moved higher in response to the higher yields and Trump’s speech. This compounded the pressure on silver.

Three Negatives Lined Up at Once

Crude oil prices surged following Trump’s remarks, with Brent and WTI both jumping sharply as supply concerns intensified. This raised the question of inflation again. Some silver traders feel that high inflation is actually good for silver since they’ve been told that the metal is a hedge against rising prices. But this case is different because traders are watching the rising yields and thinking that the central banks will keep rates elevated for longer or even raise rates. Earlier in the week on Monday, Fed Chair Jerome Powell crushed the idea of a rate hike, but Trump’s speech put that back on the table. So now we have three negatives for silver lining up, higher yields, a stronger dollar and rising crude oil prices. This is a completely different set-up from Monday when silver started its three-day rally.

Risk Sentiment Shifted Overnight and Silver Felt It

Watching the drop in the equity markets overnight also showed us why silver prices weakened. Stocks fell because of broadening risk aversion. In other words, traders weren’t comfortable with Trump’s idea to possibly escalate the war. They were comfortable earlier in the week with Trump’s suggestion that the end of the war was near, but now fear has returned and risk sentiment is once again shifting away from silver.

Stop Thinking of Silver as a Safe-Haven

In the past, some silver bulls would argue that a drop in the stock market would be good for prices. But that was years ago when investors owned either paper assets like stocks or hard assets like commodities. Today, silver is an investment and the rules are different. To take it a step further, we’re in an interest rate market and that’s what is controlling the direction.

Over the near-term, silver is likely to face renewed selling pressure because it’s tightly tied to higher yields and the stronger dollar, and not so much to the geopolitical headlines. In other words, stop thinking of it as some kind of safe-haven.

Watch the 10-Year Yield — That’s the Only Number That Matters

If oil continues to climb and reinforces inflation concerns, traders are going to continue to push for rate cut delays and that should be enough to keep a lid on silver prices.

My current bias is to the downside, but I expect to see volatility as Trump plays with the headlines. My eyes will be glued to the direction of Treasury yields because they are the key driving force in the markets. It is going to take a pullback in yields or a shift in central bank expectations to change my mind.

More Information in our Economic Calendar.