Silver's Retreat: Profit-Taking Halts Six-Day Rally as Overheating Concerns Emerge

Silver prices slipped on Monday after hitting a historic peak last week, with a key technical indicator suggesting that the metal’s rapid advance had become overheated. Gold also moved slightly lower during the session.

Early trading saw silver drop as much as 2.4%, placing it roughly two dollars below its recent record. The metal had rallied more than 8% over the prior two sessions, fueled by concerns about limited supply and growing confidence that the U.S. Federal Reserve is preparing to cut interest rates again. Lower rates generally improve the appeal of precious metals because they do not generate income.

The pullback followed a reading above 70 on the 14-day relative strength index, a level often interpreted as a sign that prices have risen too quickly. Improved risk appetite in broader markets—helped by strong demand at the final Japanese government-bond sale—also encouraged some traders to lock in profits. According to Ole Hansen of Saxo Bank A/S, the latest dip fits within a normal consolidation phase, provided silver stays above the $54.5–$55 per-ounce support area.

Much of the bullish momentum in recent months has been tied to tight supplies. Although London received record inflows of silver in October to ease long-running shortages, other storage centers have since come under strain. Stocks monitored by the Shanghai Futures Exchange have fallen to their lowest level in ten years.

Daniel Ghali of TD Securities argued that the market has moved beyond what fundamentals justify, saying that investment flows, rather than expectations for industrial or physical demand, are now driving price action. He noted that activity in London’s over-the-counter market remains subdued.

Another sign that prices may be stretched is the gold-to-silver ratio, which has fallen to its lowest point in over a year. Traders often see such extremes as possible signals that a market reversal could be approaching.

Both silver and gold continue to draw support from mounting expectations of a U.S. rate cut at next week’s Federal Reserve meeting. Markets are almost fully pricing in a quarter-percentage-point reduction at the year’s final policy gathering.

As of the afternoon session in Singapore, silver was down 1.2% at $57.29 an ounce, with other intraday readings showing similar declines across earlier time stamps. Gold was modestly lower as well, slipping about 0.4% to around $4,216 an ounce. The Bloomberg Dollar Spot Index was little changed, while platinum weakened and palladium posted slight gains.