The (XAG/USD) market seeks direction amid geopolitical risks and supply concerns

Silver Price: The Background of the Sharp Drop from the High of $84.03

Silver prices experienced a sharp correction during the Monday Asian session, falling from a high of $84.03 to $75.00. The reason was the market received news of progress in Russia-Ukraine peace negotiations. As signals of easing geopolitical tensions emerged, demand for silver, classified as a safe-haven asset, rapidly declined.

The direct trigger was the announcement that peace agreements were imminent after U.S. President Trump and Ukrainian President Zelensky met in Florida. However, core issues such as territorial disputes and the Zaporizhzhia nuclear power plant remain unresolved, leaving uncertainty about the negotiation outcomes.

The U.S. Federal Reserve’s Interest Rate Cuts as the Next Variable for Silver

More noteworthy is the direction of the U.S. Federal Reserve’s monetary policy. It is expected that interest rate cuts will be implemented at least twice by 2026. According to CME FedWatch tool data, there is a 73.3% chance that the Fed will cut rates by more than 50 basis points.

However, the Fed’s dot plot scenario suggests a different story. The federal funds rate is projected to be around 3.4% by the end of 2026, indicating a high likelihood of only a single rate cut. The gap between market expectations and policymakers’ outlooks could introduce volatility into silver prices.

A low interest rate environment traditionally enhances the appeal of precious metals like silver and gold, as the opportunity cost of holding non-yielding assets decreases when interest rates fall.

China’s Silver Export Restrictions Signal a Reorganization of the Global Supply Chain

Starting January 1, 2026, China will impose new restrictions on silver exports. This shift involves limiting the channels for small exporters and granting export licenses only to large state-owned enterprises.

This measure has heightened concerns over global silver supply. Elon Musk also criticized this move via X(Twitter), stating that “Silver is an essential resource across various industries.” Musk emphasized that “Silver plays a vital role in sectors with high demand.”

Silver Price Outlook: A Time for Choice and Focus

Ultimately, silver prices are at the intersection of three conflicting forces. Geopolitical tension easing tends to suppress prices, while expectations of Fed rate cuts and Chinese supply restrictions support prices.

In the short term, avoiding a correction seems challenging. However, if the Fed’s rate cuts intensify and industrial demand recovers over the coming months, silver prices could rebound. Especially with continued growth in demand from the semiconductor and solar industries, combined with supply constraints, there is potential for greater upward momentum.