Risk aversion heats up! Silver surges past $69, Middle East tensions become the "catalyst"

On Monday during the Asian trading session, silver (XAG/USD) performed strongly, soaring close to a historic high near $69.00, with a daily increase of 2.5%. Behind this robust rally is the renewed escalation of tensions in the Middle East.

According to media reports, the confrontation between israel and iran continues to worsen. Israeli officials are concerned that iran is ramping up ballistic missile production while rebuilding nuclear facilities that were struck by the Israeli military earlier this year. The US government is being urged to consider new military options. This uncertainty has prompted global funds to accelerate into safe-haven assets, with silver, as a traditional safe-haven tool, gaining popularity.

The Fed’s stance is another supporting point

In addition to geopolitical factors, the Federal Reserve’s policy stance also influences the direction of silver. The market generally expects the Fed not to cut interest rates at the January policy meeting. Although US inflation data in November showed signs of softness, this did not change the cautious attitude of Fed officials toward the January meeting.

November CPI data showed that the overall inflation rate fell from 3% in October to 2.7%, below economists’ expectations of 3.1%. Core inflation (excluding food and energy) also declined from 3% to 2.6%. Nevertheless, the Fed has not signaled an acceleration in rate cuts, implying that the high interest rate environment will persist, further reinforcing the attractiveness of non-yielding assets like silver.

Technical outlook: overbought signals emerge

From the chart, XAG/USD is trading around $69.02, with the 20-period moving average at $61.14, indicating a clear upward trend. The wide positive deviation of the price from the moving averages suggests strong upward momentum but also hints that the rally may have exceeded comfortable levels.

The 14-day RSI stands at 77.44, already in overbought territory, which could lead to a short-term correction. The upward trendline starting from $49.96 provides support for the bulls; if the price pulls back, the 20-EMA at $61.14 may serve as the first support. However, a break below the trendline near $65 would weaken the bullish signal and could open the door to a retracement toward the December 3 high of $59.00. On the upside, the $60.00 round number remains a key resistance level to break.

Why is silver worth paying attention to?

Silver is a precious metal favored by investors worldwide, historically serving as a store of value and medium of exchange. During periods of high inflation or rising geopolitical risks, traders often allocate silver to hedge their portfolios. Investors can buy physical silver (coins or bars), or participate through financial instruments like ETFs.

The drivers of silver price volatility are diverse. Geopolitical deterioration (such as the israel-iran situation) often pushes silver prices higher, though not as much as gold. Additionally, interest rate levels, the US dollar trend, industrial demand, and mining supply are important variables. A strong dollar tends to suppress silver prices, while a weaker dollar is supportive.

From an industrial perspective, silver has the highest electrical conductivity among metals, with strong demand in electronics, solar energy, and other fields. The economic dynamics of major economies like China, the US, and India, especially the activity in the industrial sector, directly impact silver demand. Moreover, silver often follows gold, as both are safe-haven assets. The gold-silver ratio (how many ounces of silver are needed to buy one ounce of gold) helps investors assess the relative value of the two metals.

Currently, the combination of escalating tensions between israel and iran and the Fed maintaining high interest rates is providing strong support for silver.