Silver (XAG/USD) prices have experienced a sharp decline, falling nearly 1% to trade around $36.25 during Thursday’s European session. This downturn comes amid escalating geopolitical tensions in the Middle East, which would typically provide support for safe-haven assets such as silver. 

However, a complex mix of macroeconomic, geopolitical, and technical factors has driven selling pressure in the silver market, overshadowing its traditional role as a hedge during crises. This piece by Lily Chan, a senior executive from Fletrade, sheds light on the topic, offering clarity through concise analysis.

Geopolitical Tensions Fail to Lift Silver

In a development that would usually spur demand for precious metals, senior U.S. officials are reportedly preparing for a potential military strike on Iran. This announcement has heightened geopolitical risks in the Middle East, which generally increases market uncertainty and boosts safe-haven inflows into assets like gold and silver.

Yet, contrary to expectations, the silver price has retreated. The underlying cause appears to be multifaceted, with the U.S. Dollar’s strength playing a critical role. As global investors digest the implications of a broader conflict involving the United States, they are seeking safety not in metals, but in Greenback-denominated assets.

US Dollar Gains Amid Global Uncertainty

The U.S. Dollar Index (DXY), which tracks the dollar’s value against a basket of six major currencies, climbed to a weekly high near 99.10, reflecting renewed strength in the USD. A stronger dollar generally makes commodities like silver, which are priced in dollars, more expensive for foreign investors, leading to reduced demand.

The greenback’s rally is supported not only by the Middle East uncertainty but also by the latest Federal Reserve monetary policy decision. On Wednesday, the Federal Open Market Committee (FOMC) left the benchmark interest rates unchanged in the range of 4.25%-4.50%, in line with expectations. 

This marks the fourth consecutive meeting where rates have been held steady, but the forward guidance included lower projections for interest rates in 2026 and 2027, signaling a potential easing path.

Despite the long-term dovish shift, the Fed’s acknowledgment of short-term inflation risks due to trade policy shifts under the US Administration gave a hawkish tone. Fed Chair Jerome Powell highlighted that many U.S. companies are likely to pass tariff costs onto consumers, leading to a possible resurgence of goods inflation over the coming months.

Inflation Outlook and Silver’s Role

While inflation concerns typically enhance the appeal of inflation-hedge assets such as silver, the immediate market sentiment seems more focused on liquidity flows and USD strength. Silver’s non-yielding nature makes it less attractive when real interest rates are high or stable, especially in comparison to yield-bearing assets like Treasury bonds.

In addition, the mixed signals from the Fed have created uncertainty in risk sentiment, keeping commodities trading choppy. Investors are awaiting more clarity on whether the Fed’s inflation outlook and potential tariffs will indeed pressure long-term price stability.

Technical Analysis: Near-Term Bullish Bias Intact

Despite the latest pullback, silver maintains a bullish bias on a broader technical timeframe. The 20-day Exponential Moving Average (EMA), currently near $35.40, continues to provide a critical support level for the metal. As long as silver trades above this dynamic support, the uptrend structure remains intact.

The Relative Strength Index (RSI) on the 14-day timeframe has pulled back to around 60.00, suggesting a pause in momentum but not yet a reversal. A sustained RSI above 60.00 would support the continuation of upward momentum, while a dip below this level could signal more downside in the short term.

Looking at key support and resistance zones, immediate support lies around the October 22 low of $34.87, which would act as a cushion if further declines occur. On the upside, the June 18 high of $37.32 remains the primary resistance level to break for a resumption of the bullish trend.

Summary and Outlook

The silver price is currently under pressure despite rising geopolitical risks, due in large part to a resilient US Dollar and shifting interest rate expectations. While the escalating tension between the U.S. and Iran has the potential to boost safe-haven demand, current market dynamics are favoring dollar-denominated assets over precious metals.

In the near term, silver may remain volatile, and traders should watch for a breakout above $37.32 for renewed bullish strength or a breakdown below $34.87 to confirm short-term bearish pressure.