Silver (XAG/USD) dropped by over 2%, trading near $90.40 during the Asian session. This decline followed a record high of $93.90 earlier this week. The decrease in silver prices came after the US decided against imposing tariffs on critical mineral imports. This choice highlights the US’s dependence on these minerals for various industries.

Market Adjustment And Technical Analysis

Last week, silver prices surged due to worries about possible tariffs. But the market adjusted when expectations grew that the Federal Reserve would keep interest rates steady later this month. Currently, silver is trading at $90.63. The 50-hour Exponential Moving Average (EMA) sits at $90.06, indicating an upward trend that supports short-term momentum. However, the Relative Strength Index shows slowing bullish momentum. Resistance is noted at the recent high of $93.90, with possible declines if prices drop below previous lows of $86.19 and $83.62. Silver serves as a store of value and investment, which affects its price. Factors like industrial demand, geopolitical events, and interest rates all influence silver’s worth. Silver prices often follow gold due to their shared status as safe-haven assets, with the Gold/Silver ratio reflecting value perceptions.

Market Strategy Amid Volatility

Silver’s recent pullback from its all-time high stems directly from the tariff news, which removed the immediate cause of its sharp rise. We should expect continued volatility as traders who bought on the tariff rumor start selling off their positions. This situation creates erratic market conditions, making short-term trading riskier. With bullish momentum currently stalling, now is a good time to explore strategies that benefit from a consolidation phase. Selling out-of-the-money call spreads with strike prices above the recent $93.90 high could be a wise decision. This approach allows us to earn premiums while the price stabilizes, taking advantage of the high implied volatility left from the recent rally. Despite the recent dip, the underlying reasons for silver’s strength remain intact. Industrial demand, particularly for photovoltaics, is expected to reach record levels in 2024 and 2025, driven by global green energy initiatives. The US government’s statement emphasizes silver’s strategic importance, suggesting that securing a stable long-term supply will support prices, which is positive for the metal. While the Federal Reserve’s decision to hold interest rates steady presents short-term challenges, the overall trend of monetary easing isn’t finished. We can use this dip to prepare for the next upward move, perhaps by selling cash-secured puts near the January 15 low of $86.19. This strategy can either generate income if the price stays above that level or allow us to enter a long position at a more favorable price. In the larger context, the Gold/Silver ratio has gradually narrowed from its 2024 average of around 80:1, indicating silver’s strong performance due to its industrial relevance. A pause in silver’s climb is normal after such a robust increase. Any further weakness toward the mid-$80s should be seen as an opportunity to position for the next rise, driven by the solid fundamentals that have developed over the last two years. Create your live VT Markets account and start trading now.

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