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A Sharp Drop! Will Silver Keep Underperforming?
Commodity
Forex
Summary:
After the Chicago Mercantile Exchange (CME) decided to raise margin requirements for silver futures, silver prices have been under pressure. Leveraged traders were forced to cut their positions amid technically overbought prices. Analysts noted that the current correction reflects position liquidation rather than a weakening of underlying demand.
Sell
TradingXAGUSD
EXP
74.439
Entry Price
60.000
TP
86.000
SL
71.612 -4.648 -6.09%
0
Point
Flat
60.000
TP
CLOSING
74.439
Entry Price
86.000
SL
Fundamentals
Silver prices have faced headwinds following the Chicago Mercantile Exchange's (CME) decision to hike margin requirements for silver futures. Leveraged traders were compelled to reduce their holdings when prices were in technically overbought territory. Analysts pointed out that the ongoing correction is a result of position unwinding, rather than a decline in fundamental demand.
Despite short-term price fluctuations, structural supply constraints and robust industrial demand—particularly from the solar energy, electronics, and data center sectors—continue to underpin silver prices. Additionally, a surge in speculative demand from China has driven silver prices higher, with the premium on silver futures traded on the Shanghai Futures Exchange hitting an all-time high. These elevated premiums signal strong domestic demand in China, tightening global supply chains and echoing the earlier inventory shortages in London and New York vaults.
Safe-haven demand for silver remains strong amid lingering geopolitical risks. The prospect of an end to the Russia-Ukraine conflict was clouded again following the alleged attack on President Putin's official residence. In the Middle East, Saudi Arabia's air strikes on Yemen and Iran's declaration of "all-out war" against the US, Europe, and Israel have heightened fears of broader regional instability. Trump warned that the US would take further military action if Iran resumes its nuclear program.
Expectations of Fed rate cuts and political uncertainty have weighed on the US dollar. Currently, traders and investors are closely monitoring the Fed's moves, awaiting signals on when and how it will cut rates going forward. The market is pricing in at least two rate cuts in 2026, but most expect no major moves before June. The Fed itself projects just one rate cut next year, yet significant divisions within the central bank have left market participants highly uncertain about the next steps in US monetary policy.
In addition, traders are keeping a close eye on who President Donald Trump might nominate to succeed Jerome Powell as the next Fed Chair. Any news related to this appointment could further roil markets and trigger sharp swings in the US dollar, either upward or downward.
Looking ahead, traders will focus on US economic indicators, Fed rhetoric, and political developments. All these factors are likely to exert a significant impact on the US dollar's performance in early 2026. If the market gains greater clarity on the path of interest rates or the next Fed Chair, we may see considerable short-term volatility in the US dollar.
Technical Analysis
On the 1-hour chart, the Bollinger Bands have contracted, with moving averages flattening out. Prices are oscillating along the middle band. Following a bullish MACD crossover, the fast and slow lines have pulled back toward the zero line, indicating an imminent trend reversal. The RSI stands at 49, suggesting that market participants are adopting a wait-and-see stance. Immediate resistance is located near the upper Bollinger Band around the 77 level.
On the 4-hour chart, the Bollinger Bands have narrowed, with moving averages trading sideways. Prices have moved back above the EMA12. A sustained break above the EMA12 could see silver challenging the upper Bollinger Band. Conversely, a failure to hold above this level may trigger a pullback toward the EMA50 around 70 and the lower Bollinger Band near 67.5. The RSI is at 55, placing the market in a neutral zone. From a short-term perspective, lower highs have been forming, indicating a high probability of further correction.
Therefore, it is advisable to go short first, then long in the near term.
Trade Recommendations
Trade Direction: Sell
Entry Price: 75
Target Price: 60
Stop Loss: 86
Support: 65/60/56
Resistance Levels: 70/75/80
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