Silver (XAG) Forecast: Silver Faces More Selling if WTI and Brent Stay Bid

Oil Rally Keeps Silver Bears in Control

Spot Silver (XAGUSD) is trading $56.04 at 18:10 GMT, up $0.52 or +0.93%. Friday’s gain is short-covering after a punishing week, not the start of a reversal.

Silver is posting its largest weekly decline since late June. The metal has fallen in 11 of the past 13 weeks and is down more than 20% for the year. A massive crude oil rally this week is pushing September rate-hike odds higher, the dollar found a bid on the latest Iran escalation, gold is tracking its worst week since early June, and the correction from January’s run above $100 is still accelerating.

Brent Crude at $86 Revives the September Hike Trade

WTI crude pushed above $81 per barrel Friday. Brent traded near $86.70. Both are up roughly 14% this week as the U.S.-Iran conflict keeps escalating. Iran has continued attacks on U.S. facilities and allied infrastructure while the United States has struck Iranian military targets. Shipping disruptions around the Strait of Hormuz and a potential Red Sea closure are priced into crude, and the risk premium is not coming out. A further disruption to shipping would tighten an already stressed energy market, and the conflict is showing no signs of cooling.

Silver traders already know what $86 Brent does to the inflation outlook. The Fed is expected to hold at its next meeting, but that is not the risk. September is the risk. Crude at these levels is why hike odds have not come down further even after softer inflation reports. The market had been leaning toward the idea that the Fed could stand aside. Oil wrecked that positioning in five sessions. Some pricing still reflects a meaningful chance of a September increase, and every day crude holds up here, those odds get harder to fade.

Gold Cannot Rally on a Shooting War

The dollar index held near 100.73 Friday. The weekly print is still a small loss after softer inflation data, but Friday’s session brought dollar buying as traders moved toward safety on the Iran headlines. A firm dollar combined with rising rate expectations and crude running at these levels is too much weight for silver to carry.

Gold confirms the picture. Spot gold rose Friday but is still tracking its worst week since early June. If gold cannot rally when Iran and the United States are exchanging military strikes, silver’s safe-haven bid is not a factor. Silver moves harder than gold in a selloff like this. It always has. The rate trade is running the metals complex and the direction is against both of them.

Correction From $100 Is Not Done

Silver traded above $100 per ounce in January before this correction started. After a run that extreme, traders take profits faster and chase rebounds less, especially when the fundamental backdrop shifts against them. Friday’s modest recovery looked more like bargain hunting after a sharp decline than any kind of reversal buying.

Demand from solar panels, electronics, electric vehicles and data-center buildouts still provides a longer-term floor. But that floor has not mattered for 13 weeks. Rates, the dollar and crude are all moving against silver, and industrial demand is not enough to offset a liquidation this broad. Leveraged longs are still unwinding and the market does not need a demand collapse to keep falling. It only needs buyers to keep stepping aside.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot silver hit its lowest level since November 28 on Friday before turning higher for the session. The price action suggests a potentially bullish closing price reversal bottom is forming. Follow-through buying will be needed to confirm the price action that could lead to the start of a 2 to 3 day counter-trend rally.

The move is taking place inside a major support zone. 50% to 61.8% of the all-time high of $121.67 is $60.83 to $46.48. This zone is a major retracement area that may attract buying interest. The main trend will change to up according to the daily swing indicator if $63.28 is taken out. If this creates enough upside momentum, a possible rally into the 50-day moving average at $68.03 or the 200-day moving average at $70.43 could develop.

In my view, the area could attract longer-term buying interest, but the short-term chart still needs follow-through buying to confirm its importance.

What to Watch

Crude oil, the dollar and the Fed-rate path are the three things that matter next week. If the U.S.-Iran conflict worsens and oil keeps climbing, the September hike trade gets stronger and silver stays pinned. If crude pulls back or incoming U.S. data weakens enough to bring rate-hike odds down, silver could see a round of covering after this week’s heavy break. The bulls need lower oil, softer rate expectations and a weaker dollar. Right now they have none of the three.

The potential reversal forming inside the major retracement zone off the all-time high is worth watching. But a reversal signal without follow-through buying does not yet confirm a sustained turn higher. The 50-day moving average is the first real test if buyers show up.

More Information in our Economic Calendar.