Silver retreats from record highs due to profit-taking despite underlying fundamentals remaining supportive
Silver pulled back significantly yesterday to $70.54 per ounce, after reaching a record high of $84, marking a decline of about 16% from peak to trough. The main reason for this sharp drop is profit-taking by investors, making a correction very natural, especially after the substantial gains silver achieved, which exceeded 190% since the beginning of the year. Silver is currently trading above $73 per ounce.
In addition, prices had reached the overbought zone and remained there for about a month. It was therefore natural for the Relative Strength Index (RSI) to break below the 70-point threshold, which occurred yesterday when it dropped to 68. Despite this decline, the RSI remains in positive territory, above the 50-point level. Monitoring this indicator is crucial because a drop below 50 would signal a negative outlook for silver, potentially pushing prices toward the strategic support level at the 20-day moving average, around $65.
Despite this expected pullback, fundamental and technical indicators continue to support silver in the near term, with the main supporting factors still in place:
First, the positive correlation between gold and silver, as silver typically rises faster when gold goes up, and similarly during declines.
Second, strong industrial demand for silver, given its use in multiple sectors such as medical supplies, electronics, electric vehicles, and solar panels. The rise of artificial intelligence also boosts this demand, as its infrastructure relies on electronic components containing silver.
Third, the ongoing supply deficit, where annual demand exceeds supply, meaning available quantities are insufficient, driving prices higher.
Fourth, market expectations that the US Federal Reserve will cut interest rates twice next year.
Additionally, China is preparing to impose new restrictions on silver exports starting January 1, 2026, which provides further positive momentum. Elon Musk has also warned about a potential global silver shortage, especially since each Tesla vehicle consumes 25–30 grams of silver in battery and electrical system production.
It is also worth noting that the gold-to-silver ratio recently dropped significantly to 54.34 yesterday, its lowest level since March 8, 2013. The ratio has entered oversold territory, which could signal a potential correction or profit-taking, meaning silver prices might decline to the strategic support level at the 20-day moving average of $65 before resuming upward momentum.
From a technical perspective, indicators suggest that silver prices could continue rising for the following reasons:
- A clear upward trend in the 20-, 50-, and 200-day moving averages, with the 20-day moving above the 50-day, and both above the 200-day.
- The RSI currently stands at 68 points, indicating strong upward momentum.
- A bullish crossover in the MACD between the MACD line and the signal line reinforces positive momentum for silver prices.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
