Silver is clearly losing ground, and the scale of the move shows that the market is increasingly reacting to changing expectations regarding US monetary policy. Following the September rate hike, investors still see the possibility of another move higher later this year. This is keeping US Treasury yields at elevated levels and limiting the appeal of metals that do not generate interest income.
Additional pressure is coming from the dollar. Its strengthening means a higher cost of silver for investors outside the US, which, combined with rising yields, further worsens the environment for the metal. As a result, silver is reacting much more strongly than gold, which is more closely linked to investment demand and its role as a hedge.
Silver has one more element of risk, however. It is an important industrial commodity, which makes its price more sensitive to expectations regarding global growth and industrial demand. With a stronger dollar and higher financing costs, the market may also take a more cautious view of the outlook for this segment.
From a technical perspective, the selloff is bringing prices toward the lower boundary of the recent consolidation. The market previously tried to hold silver in the $66 to $68 per ounce range, so a move below this range increases the risk of a further correction.
For now, the setup remains unfavorable for silver. A stronger dollar, high yields, and the possibility of another Fed rate hike are creating three simultaneous sources of pressure. Only a clear reversal in one of these factors could give the metal room to rebound.
Source: XTB Research
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