Silver crashes below $60 from $122 and enters oversold zone. What should you do?

Silver has plummeted below $60 after reaching a peak of $122, entering an oversold zone. This sharp reversal has left investors wondering about the metal's future. The main driver behind the sell-off is the expectation of higher US interest rates, with traders betting on additional Federal Reserve rate hikes later in the year. Inflation, fueled by oil price increases due to the Middle East conflict, has further bolstered these rate hike expectations.

Safe-haven appeal, typically sought during uncertain times, has weakened for silver since prolonged inflation can lead to tighter monetary policy. Unlike bonds, silver doesn't generate income, making it less attractive compared to fixed-income assets when bond yields rise. Additionally, a stronger US dollar makes precious metals more expensive for international buyers, further draining demand.

HSBC suggests that silver prices have already dropped to nearly $54 and that upside potential is limited. Gold is seen as a key driver for silver prices, and HSBC's optimistic outlook on gold may offer some support. However, an expected US dollar strengthening, elevated yields, and growing silver supply could limit further gains.

Silver's supply is anticipated to increase despite production challenges, with recycling and higher mine output expected to offset lower ore grades and mine closures. The silver market deficit is expected to narrow significantly, from 140 million ounces in 2025 to just 5 ounces in 2026, according to HSBC's supply-demand model. Still, a strong US dollar, high yields, and rising silver supply could cap the metal's recovery in the near term.