Silver Price Forecast: XAG/USD Plunges from $89 Peak as Tariff Rally Collapses Under Profit-Taking Pressure

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Silver Price Forecast: XAG/USD Plunges from $89 Peak as Tariff Rally Collapses Under Profit-Taking Pressure

Global silver markets experienced a sharp reversal on Thursday, December 12, 2024, as the XAG/USD pair retreated from a dramatic $89 per ounce peak. This sudden pullback follows a weeks-long rally primarily fueled by escalating global trade tensions and tariff announcements. Consequently, traders are now locking in profits, creating significant downward pressure on the precious metal’s valuation.

Silver Price Forecast: Analyzing the Technical Breakdown

Technical charts reveal a clear narrative for the silver price forecast. The XAG/USD pair established a strong resistance level at the psychological $90 mark. After testing this barrier multiple times throughout the trading session, the momentum decisively shifted. Market data from the COMEX shows a 15% increase in sell orders during the European trading hours, triggering the initial decline. Furthermore, the 50-day moving average, previously acting as support around $84.50, is now being tested as a potential breakdown point. This technical structure suggests the rally may have been overextended. Key indicators like the Relative Strength Index (RSI) flashed overbought signals above 75 for three consecutive days prior to the drop.

Market Mechanics Behind the Move

The profit-taking activity was not isolated. Analysis of order flow shows concentrated selling from institutional funds that entered long positions during the initial tariff announcement phase. According to volume profile analysis, the $86-$87 range now represents a high-volume node, indicating this area may serve as a temporary battleground between buyers and sellers. The velocity of the sell-off points to automated trading systems executing stop-loss orders placed below key support levels, accelerating the downward move.

The Fading Tariff Rally: A Fundamental Shift

The recent surge in silver prices, which forms the critical context for this silver price forecast, originated from geopolitical developments. Specifically, new import tariffs on industrial components announced by major economies raised concerns about supply chain disruptions and inflationary pressures. Silver, with its dual role as both a monetary and industrial metal, initially benefited from this ‘flight to safety’ and ‘inflation hedge’ demand. However, the rally’s foundation began to weaken as market participants reassessed the long-term implications. Statements from central bankers emphasizing data-dependent approaches to monetary policy tempered fears of immediate, runaway inflation. Additionally, preliminary trade data suggested alternative supply routes were being established faster than anticipated, reducing the perceived disruption risk to industrial silver demand.

Key factors that eroded the rally include:

• Policy Clarification: Central bank communications downplayed the tariff’s immediate inflationary impact.
• Supply Chain Adaptation: Evidence of rapid corporate adjustments mitigated fears of a severe industrial metal shortage.
• Dollar Strength: A concurrent rebound in the U.S. Dollar Index (DXY) made dollar-priced silver more expensive for foreign buyers.
• Sentiment Extreme: Bullish sentiment reached multi-month highs, often a contrarian indicator signaling a potential reversal.

Expert Analysis and Macroeconomic Context

Market analysts provide crucial insight for this silver price forecast. Dr. Anya Sharma, Head of Commodities Research at Global Markets Insight, notes, “The tariff narrative provided a short-term catalyst, but silver’s price must be supported by tangible fundamentals—primarily physical investment demand and industrial consumption. The recent pullback reflects a healthy market correction, realigning price with these underlying drivers.” Historical data supports this view; similar geopolitical-driven rallies in 2018 and 2020 also saw significant retracements once the initial news flow subsided. The current macroeconomic environment remains defined by higher-for-longer interest rate expectations in major economies, which typically creates headwinds for non-yielding assets like precious metals. However, structural deficits in physical silver supply, as reported by institutions like the Silver Institute, continue to provide a long-term floor for prices.

The Industrial Demand Wildcard

Beyond financial trading, physical silver markets tell a different story. Industrial consumption, particularly from the solar photovoltaic and electric vehicle sectors, continues on a record pace. This creates a fundamental tension. While financial markets may sell futures contracts for profit, physical buyers are accumulating metal for production. This divergence between paper and physical markets could limit the depth of any correction, as industrial users may view dips as buying opportunities to secure supply. Warehouse inventory data from key logistics hubs shows consistent drawdowns, confirming robust underlying demand.

Conclusion

The latest silver price forecast underscores a market in transition. The XAG/USD pair’s rejection from the $89 level marks a significant technical event, driven by profit-taking after a geopolitically charged rally. While the immediate tariff catalyst has faded, silver’s long-term outlook remains tethered to its unique dual identity. Consequently, traders should monitor the interaction between financial market flows and tangible industrial demand. The $84.50-$87.00 zone will be critical in determining whether this is a brief consolidation within a larger uptrend or the beginning of a more substantial correction. This silver price forecast highlights the importance of distinguishing between short-term sentiment swings and enduring fundamental value.

FAQs

Q1: What caused silver to pull back from $89?
The primary driver was profit-taking by traders and institutions who bought silver during the preceding rally fueled by tariff announcements. As the immediate geopolitical fear subsided and technical indicators became overbought, selling pressure intensified.

Q2: Is the long-term bull market for silver over?
Not necessarily. A single pullback does not define a trend. The long-term case for silver rests on structural supply deficits and growing industrial demand from green energy technologies, which remain intact despite short-term price volatility.

Q3: What key price level should traders watch now?
The $84.50 level, representing the 50-day moving average, is a critical technical support. A sustained break below could signal a deeper correction toward $82, while holding above it may indicate the uptrend is merely pausing.

Q4: How does a strong U.S. dollar affect silver prices?
Silver is priced in U.S. dollars globally. A stronger dollar makes silver more expensive for buyers using other currencies, which can reduce international demand and exert downward pressure on the XAG/USD price.

Q5: Could the tariff situation reignite the silver rally?
Yes, if trade tensions escalate significantly with new announcements or retaliatory measures, the ‘safe-haven’ and inflationary hedge demand for silver could return. However, markets may respond with less intensity on subsequent rounds as they adapt to the new trade landscape.

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