During the Asian trading session on Friday (July 24), spot silver edged lower, currently trading near $57.30 per ounce, following a significant drop of more than 3% in the previous session.

The ongoing escalation of the Middle East conflict—with Houthi militants attacking a Saudi oil tanker in the Red Sea, U.S. forces conducting airstrikes on Iranian targets for the 13th consecutive night, and Trump vowing "major military punishment"—provides a floor for silver through safe-haven demand driven by geopolitical risks.

However, the same conflict that is boosting oil prices is also strengthening market expectations for a Federal Reserve interest rate hike. The CME FedWatch tool shows the probability of a July rate hike has risen to 35.8%, while the probability of a September hike stands at a high 82.1%. Silver is struggling to find a balance as it navigates the tension between "geopolitical safe-haven" demand and "rate hike pressure."

Geopolitical Risks Continue to Escalate

The Middle East situation has deteriorated over the past two weeks, generating safe-haven buying for silver. Houthi militants attacked two Saudi oil tankers in the Red Sea, marking the group's first direct strike on tankers in those waters. In response, U.S. forces have conducted military strikes on targets inside Iran for the 13th consecutive night. Trump has further warned that if attacks persist, "major military punishment" will be imposed on the Houthis and Iran, and he hinted at being close to deciding on a "massive, unprecedented military operation" against Iran.

The impact of this geopolitical environment on silver requires careful analysis. Compared to gold, silver has weaker safe-haven properties. Its nature as an industrial metal means it is simultaneously pulled by "safe-haven buying" (a positive) and "economic growth concerns" (a negative) when facing geopolitical risks. This is a key reason why silver's gains have lagged behind gold during this Middle East conflict.

Currently, safe-haven buying for silver primarily comes from institutional investors shifting out of equities and into physical assets. However, if geopolitical risks escalate into a full-scale confrontation, silver's safe-haven properties could be repriced, potentially pushing the price above $60 per ounce. But until then, the support from safe-haven demand remains relatively limited.

The Sword of Damocles: Rate Hike Expectations

The biggest macro headwind for silver right now is the intensifying expectation of Federal Reserve interest rate hikes. After crude oil prices broke above $100 per barrel due to geopolitical risks, market concerns about a rebound in inflation have surged. The CME FedWatch tool indicates a 35.8% probability of a 25-basis-point rate hike in July and an 82.1% probability of at least a 25-basis-point hike in September.

The pressure from rate hike expectations on silver is transmitted through two channels:

The interest rate channel: A rate hike would push up real interest rates, increasing the opportunity cost of holding non-yielding assets. As a zero-yield asset, silver typically underperforms during rising interest rate cycles. If the Fed resumes hiking in July or September, silver would face systemic valuation pressure. The U.S. dollar channel: Rate hike expectations boost the U.S. dollar, and a stronger dollar typically puts direct downward pressure on silver, which is priced in dollars. The dollar index is hovering around the 101 level. If it breaks through the resistance zone of 101.45-101.80, silver could face a new wave of selling pressure.

The combined effect of these two channels was the direct cause of silver's more than 4% decline on Thursday. Even with a slight rebound on Friday, silver's upside potential will remain significantly constrained until rate hike expectations subside.

Silver's Dilemma

Silver is currently in a classic tug-of-war pattern between bulls and bears. Both sides have complete logical chains, and the market is waiting for a directional catalyst.

The core bullish logic: The ongoing escalation of the Middle East conflict keeps the geopolitical risk premium elevated. With oil prices above $100 per barrel, global inflation expectations are rising, increasing demand for silver as an inflation hedge. If the conflict expands into a full-scale confrontation, a surge in safe-haven buying could push silver above $60 per ounce.

The core bearish logic: The rising expectation of Fed rate hikes pushes real interest rates higher, suppressing non-yielding assets. A stronger dollar directly pressures silver. Silver's recent rally has already priced in a significant amount of geopolitical premium, so any signs of de-escalation could trigger profit-taking.

The balance between bulls and bears hinges on two key variables: whether the Middle East situation continues to deteriorate or sees a temporary de-escalation, and whether the Fed sends hawkish or dovish signals at the FOMC meeting. Until these variables become clear, silver is likely to trade in a choppy range between $55 and $60 per ounce.

According to the daily chart, spot silver is currently trading below the MA20 ($58.73). Short-term moving averages are forming clear resistance, while the MA50 and MA100 are both declining, indicating the medium-term downtrend has not substantially reversed. The MA200, a long-term moving average, provides a strong resistance level above.

On the indicator front, the MACD is below the zero line, with the DIFF line above the DEA line. The red histogram bars are weakly increasing, which represents only a technical correction within a downtrend, and the bullish counterattack lacks strength. The RSI is at 41.29, below the 50 midline. Although it has moved out of oversold territory, buying momentum is insufficient, casting doubt on the sustainability of any rebound.

Two Key Variables Will Determine Silver's Breakout Direction

Spot silver is currently at a critical inflection point. Safe-haven demand from geopolitical risks provides a floor for the price, but the rising expectation of Fed rate hikes caps the upside. Thursday's correction of over 4% was a correction of "overpriced geopolitical premium" rather than a trend reversal, as evidenced by the modest rebound on Friday.

In the short term, silver is expected to trade in a choppy range between $55 and $60 per ounce. The direction depends on two variables: The evolution of the Middle East situation—if the conflict escalates into a full-scale confrontation, silver could break above $60 and move toward $62-$65; if any de-escalation signals emerge, silver could retest the $55-$56 range. The policy signal from the FOMC meeting—if the Fed sends a hawkish signal (e.g., hinting at a September rate hike), silver will face greater downward pressure; if the hawkishness is less than expected, silver could get some breathing room.

Until these two variables become clear, the "tug-of-war pattern" for silver is unlikely to be broken. For traders, $57.60 is the short-term bull-bear line—holding above it is bullish, while losing it is bearish. However, over a larger time frame, the medium-term direction for silver still depends on further clarity regarding the Fed's policy path and the Middle East situation.

At 14:12 Beijing time on July 24, spot silver was reported at $57.30 per ounce.