Silver Price Falls Steeply on Higher Oil, US Bond Yields

Current Setup and Market Bias: Bearish below $62.50

Silver prices suffered a steep overnight collapse in early Monday trading. As of writing, the white metal had fallen 4.29% toward $61.29/oz. The move comprehensively breached the $62.50 support which has held since early August and effectively extended the previous week’s 3% decline.

The overnight steep drop is being seen as a macro-driven move rater than a deterioration in silver’s defensive industrial demand narrative. In effect, the ongoing geopolitical crisis has led a return in Brent crude back above the $100 mark, which is driving higher inflationary expectations. Ahead of this week’s Core PCE Price Index data release for August (the Fed’s key inflation barometer), the situation has led to stronger US bond yields and has heightened Fed rate expectations once more. Investors are preferring the higher-yielding US Dollar (also a safe-haven asset) ahead of the non-yielding white metal.

For now, the intraday support is the $62 psychological barrier. A technical rebound is possible if the bulls hold this line, otherwise a revisit to the $60 nearby support could be on the cards.

Silver Price Drop: Macro Causes

1. Stalled US-Iran Negotiations

US-Iran diplomatic efforts appear to have stalled after US President Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz. This was the primary catalyst behind the overnight drop. This development means that the Hormuz shipping disruption remains in place, presenting an upside risk to oil prices.

2. Higher oil prices

Brent moved back above $100, reigniting concerns of imported inflationary risks to the US economy. This reinforces expectations of an October Fed rate hike, which has already been called by several institutional entities including Goldman Sachs. Higher rates and US Treasury yields are silver-negative due to the non-yielding status of silver vs USD-denominated assets.

3. US Dollar and US Treasury Yields Strengthened

Higher oil, persistent inflation concerns and hawkish Fed expectations have driven strong USD demand and sent US bond yields soaring. Silver is non-yielding and there is a higher opportunity cost for holding it against USD-denominated assets that have higher yields.

Silver Price: Forecast Scenarios

Base case→ Consolidation: The $60–$64 price zone is the expected consolidation area as sellers take a break from the sharp overnight decline. This gives room for reassessment of market conditions around oil prices, the US Dollar and also the repricing of these assets and inflationary concerns. Traders may also want to reassess their positions ahead of the incoming US Core PCE inflation index and Non-Farm Payrolls data.

Bull case→Recovery: This is more of a profit-taking move by sellers, allowing buyers to come in at current levels to drive an upside retracement above $64. If the price pushes above $64, a move towards $67.40 cannot be ruled out.

Bear case→ Selloff resumption: If sellers keep prices persistently below $62, downside targets at $60.04 and $56.90 beckon. This scenario plays out if oil prices keep rising further northwards of $100, preserving the geopolitical risk premium.

Technical Outlook

The 62.50 level remains the critical price level. A recovery above this level brings the $67.40 resistance (22 September high) within the reach of the bulls. If they are able to uncap this resistance barrier, a further recovery towards the 28 August high at 70.73 could be on the cards.

Conversely, sustained selling below the 62.50 price mark continues to expose downside targets at 60.04 (psychological support and neckline of 17 July/31 July double bottom), and at 56.91 (31 July low).