Silver's 1.7% Pullback: A Tactical Test of Geopolitical and Macro Drivers

Silver's recent volatility hit a new peak this week. The metal fell 1.70% to $91.70 per ounce on Thursday, correcting from a new all-time high close to $94 hit earlier in the session. This pullback is a classic profit-taking move, but the catalyst for the immediate calm is geopolitical. US President Donald Trump's comments that reports suggest Iran-related crackdown killings are easing and that no mass executions are planned have helped calm fears of a direct military escalation. That easing of geopolitical tension directly reduces the safe-haven appeal of precious metals like silver.

This event must be viewed against the backdrop of extreme recent swings. Just weeks ago, silver suffered a brutal 11% single-day plunge in late December, a cascade triggered by margin hikes that forced liquidations. That event highlighted how leveraged positions can amplify price moves. The current 1.7% drop is a fraction of that, but it serves as a tactical test. The question for traders is whether this is a buying opportunity-a temporary pause in a strong trend-or a warning sign that the recent surge has run too far, too fast, and is vulnerable to any fresh geopolitical spark or macro shift.

The setup is a classic tension between short-term catalysts and longer-term structural drivers. While Trump's comments provide a near-term reason for the sell-off, the medium-term outlook for silver remains supported by persistent supply deficits and solid industrial demand. The tactical move now hinges on whether the geopolitical relief is durable or fleeting, and whether the metal's strong fundamentals can quickly reassert themselves after this profit-taking.

The Risk/Reward Setup: Drivers vs. Profit-Taking

The tactical test now is clear. Silver's 36.35% monthly gain has pushed it deep into overbought territory, creating a powerful headwind for profit-taking. That pressure is evident in the recent pullback, a natural correction after a surge that has seen the metal climb to new all-time highs. The immediate catalyst was geopolitical easing, but the broader macro environment is also working against it. Stronger-than-expected US data supports a hold on Federal Reserve rates, which strengthens the US Dollar and weighs on non-yielding metals like silver.

Yet, the structural support remains intact. The long-term drivers of "resource nationalism" and supply constraints are not fleeting. China's export controls on silver in December are a concrete example of how geopolitical friction is directly impacting supply. Analysts point to this emerging battle between major powers for control of critical resources as a persistent tailwind for the metal. This creates a tension: short-term profit-taking and dollar strength are pressuring the price, while fundamental supply-demand dynamics and safe-haven demand are providing a floor.

The risk/reward hinges on which force wins. The downside is clear if geopolitical tensions flare again or if the dollar rally accelerates. The metal's weekly gain of over 13% shows it can still rally strongly on fear, but it also means a sharp reversal is possible. The upside, however, is anchored by those structural supports. Even after the pullback, silver remains up 197.51% compared to the same time last year. The setup suggests a volatile consolidation is likely, but the medium-term trajectory is still supported by persistent deficits and industrial demand. For a tactical trader, the key is whether the current correction is a buying opportunity to ride the next leg up or a sign to wait for a clearer signal from the drivers.

Positioning and Technicals: Overbought and Liquidation Risk

The technical setup for silver is one of classic overbought vulnerability. The iShares Silver Trust (SLV), the primary ETF tracking the spot price, trades at $62.74. That's a clear step down from its 52-week high of $64.05, mirroring the broader metal's pullback. More importantly, the recent volatility highlights a structural risk: forced liquidations from margin calls. The market learned that lesson brutally in late December, when a 11% single-day plunge was triggered by a CME Group margin hike that forced smaller traders to close positions. That event remains a stark reminder that sharp rallies can quickly reverse if leverage is not managed.

On the chart, key support levels are now critical. The recent low around $91.72 per ounce is a near-term floor to watch. A break below that could accelerate the decline, testing the 50-day moving average and other technical supports. The weekly gain of over 13% shows the metal has strong momentum, but it also means it is due for a consolidation. The risk is that any fresh geopolitical spark or macro shift could trigger another cascade of liquidations, as seen in December.

The bottom line for positioning is one of heightened sensitivity. The ETF's price action reflects the metal's extreme overbought condition after a 36.35% monthly gain. While the structural drivers of supply deficits and industrial demand provide a long-term floor, the tactical setup is fragile. Traders must watch the $90-$91 support zone and the 50-day MA. A bounce from those levels could signal a pause in the correction, but a decisive break below them would confirm the overbought pressure is winning, increasing the risk of further forced selling.

Catalysts and Watchpoints: What to Monitor for the Next Move

The tactical test now is about what happens next. For silver, the immediate dip is a pause, but the catalysts that will determine if this is a temporary setback or the start of a sustained correction are clear. Traders must watch three key areas.

First, monitor the geopolitical and macro policy drivers that sparked the recent rally. The easing of Iran tensions provided a near-term reason for the pullback, but that relief is fragile. Any re-acceleration of geopolitical friction-whether in the Middle East or elsewhere-could quickly reignite safe-haven flows. At the same time, watch for a shift in Federal Reserve policy expectations. Stronger US data have supported a hold on rates, boosting the dollar and pressuring silver. A dovish pivot or a shift in the rate-cut timeline would be a direct tailwind, while any hawkish surprise would add to the headwind.

Second, look to the physical silver market for signs of underlying strength. The recent rally was fueled by both speculative and industrial demand. A widening gap between Shanghai and Western silver prices would signal tight physical supply, a key fundamental support. China's export controls on silver in December are a concrete example of how supply is being constrained. If that supply deficit persists or deepens, it provides a tangible floor for the price, regardless of short-term sentiment.

Third, track the ratio between gold and silver. A high ratio suggests silver is relatively cheap compared to gold, which could attract value-driven buying. This ratio is a useful gauge of relative momentum and positioning. If the ratio remains elevated, it may indicate silver still has room to catch up to gold on a momentum basis, especially if industrial demand continues to support the metal.

The bottom line is that the setup is balanced between these forces. The recent correction has reset the overbought condition, but the structural drivers of supply deficits and "resource nationalism" remain. For a tactical move, the key is to watch these three watchpoints: geopolitical stability, Fed policy shifts, and the physical supply-demand balance. A break of key technical support around $90-$91 could signal the correction is gaining traction, while a re-acceleration of geopolitical tension or a dovish Fed shift would likely spark a swift reversal.