Silver markets are exhibiting renewed volatility this week as XAG/USD retreats from multi-year highs, following notable developments in US-China trade relations.
The precious metal, which had been surging due to strong industrial demand expectations and a weak US dollar, is now facing resistance amid easing geopolitical tensions and a cooling off of bullish momentum. In this piece, Servelius brokers provide a clear and detailed look into the topic.
Technical Correction Follows Multi-Year Highs
Silver prices are easing on Wednesday, consolidating around the $36.00 psychological support zone. The commodity had earlier tested its highest level since February 2012, pushing toward $37.49, before profit-taking activity and technical indicators signaled a potential overbought condition.
The Relative Strength Index (RSI) currently sits at 67, just below the overbought threshold of 70, underscoring the stretched upside momentum. This suggests that bulls may need to pause, allowing for consolidation before any further leg higher can be justified.
Easing US-China Tensions Dampen Momentum
Silver’s earlier rally was partially fueled by uncertainty surrounding global trade flows, especially between the United States and China, the world’s two largest economies. However, recent diplomatic breakthroughs have somewhat softened that narrative.
On Tuesday, high-level trade talks between US and Chinese officials concluded in London with what has been described as a provisional framework agreement. This development has prompted renewed optimism for long-term trade cooperation, shifting investor sentiment away from safe-haven metals like silver and gold.
Resistance and Support Levels in Focus
From a technical standpoint, silver’s recent climb breached a key resistance at the October 2012 high of $35.96, briefly extending gains to $36.65, before stalling just below the critical $37.49 resistance zone. This level now serves as the next upside target should momentum resume.
On the downside, immediate support is located at the 10-day Simple Moving Average (SMA) of $35.12, which aligns with prior consolidation levels. A further pullback could test the $35.00–$34.87 zone, identified as both a prior breakout point and a Fibonacci retracement base.
Should silver breach this area, additional support may emerge at $34.00, with the 50-day SMA resting lower at $33.01, offering a critical test for any bearish extension.
Momentum and Market Sentiment Outlook
Despite the pullback, silver’s technical structure remains broadly constructive. The bullish trendline from mid-April remains intact, and as long as XAG/USD holds above the $34.87 breakout level, the medium-term bias favors further gains.
That said, with the RSI still elevated and silver trading above all major moving averages, the metal is vulnerable to short-term corrections. The market is likely entering a profit-taking phase, especially following the parabolic surge that pushed silver into overbought territory.
Additionally, options volatility has started to decline, indicating a reduction in speculative positioning. This reinforces the likelihood of a consolidation phase, particularly as traders await further developments in macroeconomic data and monetary policy signals from the Federal Reserve.
Industrial Demand Still Underpins Long-Term Strength
While silver is easing from peak levels, its long-term fundamentals remain robust. Ongoing demand from solar energy, electric vehicles (EVs), and electronics manufacturing continues to drive strong industrial consumption. Furthermore, central banks’ cautious tone and concerns about structural inflation could sustain investor interest in precious metals as inflation hedges.
With US-China trade tensions showing signs of resolution, markets may reprice silver’s risk premium. However, any delay or reversal in the trade negotiations could rapidly reignite safe-haven flows back into the metal.
Key Technical Summary:
- Current Price: ~$36.00
- RSI: 67 (near overbought)
- Immediate Resistance: $36.65 and $37.49
- Immediate Support: $35.12 (10-day SMA), $34.87, $34.00
- Trend Bias: Bullish with short-term consolidation
With volatility poised to persist, silver markets remain a focal point for traders navigating the evolving intersection of technical signals, geopolitical developments, and macro fundamentals.
Conclusion
Silver’s current retreat appears to be a healthy correction rather than a breakdown. After reaching multi-decade highs, the metal is now digesting gains, with overbought technical readings prompting short-term profit-taking.
The improved tone in US-China trade discussions has temporarily eased some geopolitical risk premiums, adding to the downward pressure. However, as long as XAG/USD remains above key support zones like $34.87 and $34.00, the broader bullish trend remains intact.
Traders and investors should monitor technical indicators like the RSI, SMA levels, and upcoming macroeconomic announcements, particularly from the Federal Reserve, which could influence both interest rate expectations and metal valuations.
