The metal faces pressure from margin hikes, physical delivery demands, and aggressive Chinese short positioning.
Long-term fundamentals stay supportive, but prices remain range-bound, awaiting macro and technical clarity.
The sharp falls seen in at the end of last week can reasonably be described as a crash. The main trigger was news that Kevin Warsh had been nominated to lead the Federal Reserve.
Until then, markets had been expecting a very dovish choice. That view was shaped by President Donald Trump, who has repeatedly called for a weaker US dollar and pushed the Fed to cut faster. The nomination came as a surprise and forced markets to quickly reassess their expectations.
That said, how the new Fed chair would actually run the central bank remains uncertain.
Meanwhile, commodity markets have struggled to recover. Despite some attempts to bounce, prices have failed to regain upward momentum. Commodities, including silver, may remain stuck in a period of sideways trading for now.
Investors Demand Physical Deliveries
Apart from monetary factors, silver prices are also under pressure because the CME Group raised margin requirements for gold and silver. This forced some investors to close their long positions, adding to selling pressure.
At the same time, more futures contracts are moving toward physical delivery instead of being rolled over. Given the existing supply shortfall, this situation currently works in favor of sellers rather than buyers.
There is also notable activity coming from China. The investment firm Zhongcai Futures built a large short position in silver, estimated at around $1.5 billion, and reportedly made strong profits as prices fell.
After the Lunar New Year holiday and the reopening of the Shanghai Stock Exchange, markets will be watching closely to see how demand from Asia develops.
Overall, the current move looks like a correction after metal prices rose too quickly in a short period of time. This pullback does little to change the longer-term picture. Fundamentally, buyers still have strong reasons to expect higher prices over time, mainly because supply remains tight and demand from industry continues to grow.
Markets will also be watching Kevin Warsh closely. Any public comments from him could give investors a better sense of how he views the broader economic outlook and the path of interest rates in the coming quarters.
Silver Technical Outlook
Early this week, demand appeared to be returning as investors used the selloff to buy at lower prices. That recovery was short-lived. Another wave of selling changed the picture, at least for now. Prices are currently moving within a range of $74 to $92 per ounce.
By the end of the week, prices may remain within this range, assuming the US labor market data brings no major surprises. The market appears to be waiting for a breakout that should set the next direction, at least from a technical perspective.
Meanwhile, the has once again held an important support level around 96, which also marks this year’s lows.
If buyers manage to push the rebound further, the next key target is resistance around 100. A break above that level could open the way toward 103.
On the downside, a move below 96 on the US Dollar Index would be a clear signal that the downward trend is likely to continue.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
