Silver plunges as forced liquidation and USD rebound weigh on prices
- Silver drops sharply after a wave of forced liquidation triggered by extreme volatility in precious metals markets.
- The rebound in the US Dollar and rising Treasury yields weigh heavily on Silver following Donald Trump’s nomination of Kevin Warsh.
- Despite the violent correction, Silver remains on track for an exceptional monthly performance.
Silver (XAG/USD) comes under intense selling pressure on Friday, posting a sharp correction after reaching a record high the previous day. The white metal gives back a large portion of its recent gains as extreme volatility across precious metals markets triggers widespread liquidation of leveraged positions, while investors lock in profits at elevated price levels. At the time of writing, Silver trades around $102.20, down 12.30% on the day, after hitting an all-time high at $121.66 on Thursday.
The sell-off accelerated during the European session, with prices briefly plunging to an intraday low of $95.08 before attempting to stabilize above the psychological $100 level. This violent move reflects a broad-based pullback from the most speculative safe-haven assets, as markets rapidly reassess the outlook for US monetary policy.
Silver is also pressured by the strengthening of the US Dollar (USD) and rising US Treasury yields following the announcement that US President Donald Trump has nominated Kevin Warsh to lead the Federal Reserve (Fed). Investors view Kevin Warsh as more hawkish on inflation and supportive of balance sheet reduction, reinforcing expectations of a less accommodative Fed than previously anticipated. This shift increases the opportunity cost of holding non-yielding assets such as Silver, weighing further on prices.
Against this backdrop, the spectacular rally seen in recent weeks gives way to a brutal consolidation phase. Even so, despite the sharp pullback, Silver remains on track to post one of its strongest monthly performances on record, underpinned by underlying safe-haven demand driven by geopolitical tensions, particularly in the Middle East, and persistent uncertainty surrounding global growth and the trajectory of US monetary policy.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Author
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
