By Rania Gule, Senior Market Analyst at XS.com – MENA
The silver market is currently experiencing one of its most sensitive and complex phases since the beginning of the latest monetary tightening cycle. Silver against the US dollar (XAG/USD) rose to approximately $76.60 per ounce after a sharp 11.5% loss in a single session. However, this rebound does not negate the fact that the metal is still heading toward a third consecutive weekly decline. In my view, this contradictory movement reflects a clear struggle between short-term technical factors supporting a rebound and deeper fundamental pressures weighing on the broader trend. The current bounce appears more like a temporary rebalancing following an excessive sell-off rather than the start of a sustained bullish trend, especially amid ongoing uncertainty surrounding US monetary policy and global liquidity expectations.
What stands out in silver’s recent decline is the absence of a clear fundamental catalyst to justify such a sharp drop, reinforcing the argument that the market experienced widespread forced liquidation across multiple asset classes, including equities and cryptocurrencies. From my perspective, this type of decline is often less about changing economic fundamentals and more about liquidity pressures and risk management dynamics, particularly in an environment dominated by algorithmic and systematic trading flows. This suggests that a significant portion of the sell-off was technically driven rather than fundamentally justified, which explains the swift rebound that followed. Nevertheless, markets that undergo forced liquidation tend to remain vulnerable to further volatility before regaining a clear direction, leading me to believe that silver has not yet reached full stability.
The most influential factor shaping my outlook for silver in the coming months is US inflation trends and their implications for Federal Reserve policy. Expectations point to a slowdown in headline inflation to 2.5%, a level approaching the central bank’s target, yet markets are still pricing in a high probability—around 92%—that the Federal Reserve will leave interest rates unchanged at its upcoming meeting. In my assessment, this divergence between easing inflation and relatively restrictive monetary policy represents a medium-term headwind for silver. Like gold, silver typically benefits from lower interest rate environments. However, higher rates for longer imply an elevated opportunity cost for holding non-yielding assets, thereby reducing their relative attractiveness.
On the other hand, expectations of two rate cuts by year-end, with the first potentially occurring in June, provide a structural support factor for silver over the medium term. I believe markets have already partially priced in this scenario, which helps explain silver’s resilience at relatively elevated levels despite recent volatility. That said, the timing and magnitude of these cuts will be decisive in shaping the future trajectory. If rate cuts are delayed or delivered at a slower pace than anticipated, silver could face renewed pressure. Conversely, if monetary easing accelerates, we may witness a fresh bullish wave capable of pushing prices toward new record highs.
Beyond monetary dynamics, geopolitical developments continue to influence silver’s role as a safe-haven asset. The easing of fears surrounding a potential military escalation, following indications of continued diplomatic engagement between the United States and Iran, has reduced precautionary demand for precious metals. In my view, this highlights the sensitivity of the silver market to shifts in geopolitical risk. Although silver also serves as an industrial metal, it reacts strongly to broader risk sentiment. When geopolitical tensions subside, safe-haven demand tends to weaken, contributing to downward price pressure.
However, the longer-term fundamentals present a more nuanced picture. Silver is not merely a defensive asset; it is also a critical industrial metal used extensively in strategic sectors such as solar energy and advanced technology. In my opinion, this expanding industrial demand forms a solid long-term support base for prices. Therefore, sharp pullbacks may represent opportunities to rebuild investment positions, particularly if they coincide with a gradual shift toward more accommodative monetary policy.
Strategically, I view silver as undergoing a corrective phase within a broader uptrend that began several quarters ago. Despite the severity of recent declines, the long-term bullish structure has not yet been broken, suggesting that the overarching trend remains positive. Nonetheless, continued volatility indicates that the market is in a reassessment phase, and we may see choppy price action before the uptrend resumes. In my estimation, silver’s ability to hold above key support levels in the coming weeks will serve as a critical indicator of underlying trend strength.
Taking all these factors into account, my outlook suggests that silver may remain under pressure in the short term, with continued volatility and possibly further tests of lower support levels—particularly if the Federal Reserve delays rate cuts. However, I expect the broader trend in the second half of the year to turn bullish, supported by monetary easing expectations, sustained industrial demand, and the potential re-emergence of geopolitical risks. In other words, the current phase likely represents a transitional period between a previous rally and a potential new upward wave rather than the beginning of a long-term bearish trend. I therefore maintain that silver retains strong upside potential, although the path toward higher levels will likely be nonlinear, marked by significant volatility and repricing before a definitive direction emerges.