Silver is likely to benefit in both scenarios. If the Middle East conflict continues, rising recession risks will support demand for precious metals. If the US and Iran reach an agreement, the US dollar will weaken, which will also support silver. Let’s discuss this topic and make a trading plan for the XAG/USD pair.
The article covers the following subjects:
Major Takeaways
- Investors rushed out of the silver market.
- Central banks are putting pressure on silver.
- Geopolitics may favor XAGUSD.
- Consider buying silver on a bounce from $74 and $70.5.
Monthly Fundamental Forecast for Silver
The sharp sell-off in silver in late January was driven by the liquidation of highly leveraged ETF positions, according to the Bank for International Settlements. These funds had previously attracted strong retail inflows, helping push XAG/USD up by 50% in just a few weeks at the start of the year. The rally was followed by a sharp correction, with prices falling 36% in a single day.
Silver Daily Performance
Source: Bloomberg.
Although such shocks tend to have lasting effects, many retail investors have remained in the market. Silver is less liquid than gold, so it tends to react more sharply to volatility. The XAG/USD pair has fallen by about 16% from its March highs at the start of the Middle East conflict, versus a 7% drop in gold.
However, the situation could have been worse. In the early stages of major crises, investors typically move into cash, increasing demand for fiat currencies, especially the US dollar.
At the same time, rising global inflation concerns are pushing central banks toward a more hawkish stance. Some, like the Fed and the Bank of England, are extending pauses in easing. Others, including the Bank of Japan and the ECB, are signaling potential rate hikes, while the RBA has already tightened policy. As a result, fiat currencies are strengthening, reducing the appeal of debasement-driven trades that typically bolster precious metals.
However, it is often not the crisis itself that matters most, but its consequences. A closure of the Strait of Hormuz, described by the International Energy Agency as the largest oil shock in history, could lead to higher oil prices, stagflation, and even a global recession. In such an environment, XAUUSD and XAG/USD tend to perform well.
Chinese investors are helping to underpin precious metals. Following the Lunar New Year, they have been steadily adding to gold ETFs. According to Bloomberg, assets in these funds increased by 17 billion yuan, or about $2.5 billion, over the period. This has lifted gold premiums in Shanghai compared to London.
Shanghai–London Gold Premium Spread
Source: Bloomberg.
The longer the Middle East conflict persists, the greater the risk of a global recession, which favors silver. A quick resolution, by contrast, would likely put pressure on the US dollar, again playing into silver’s hands. Either way, the metal stands to benefit.
Monthly Trading Plan for XAGUSD
Despite near-term pressure from central banks’ intention to keep rates elevated, the medium- and long-term outlook for XAG/USD remains bullish. A bounce from $74 and $70.50, or a break above $85, may offer opportunities to open long trades.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAGUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
