5% slide takes silver to three-month low as bets on Fed rate hikes mount

• 5% is Silver’s loss on Thursday. Expectations that monetary policy will remain restrictive for longer are weighing on precious metals.
• Inflation concerns intensify as escalating Middle East tensions drive Oil prices higher.
• Another Fed rate hike is anticipated in December, although markets expect rates to remain unchanged next week.

5.00% is Silver’s daily decline on Thursday. Silver (XAG/USD) trades around $55.05 at the time of writing, extending its sharp slide after touching a three-month low of $55.01. Growing inflation concerns are fuelling expectations that the Federal Reserve (Fed) will keep interest rates elevated for longer, leaving the precious metal under heavy selling pressure. A recovering US Dollar (USD) is accelerating the decline.

Escalating geopolitical tensions in the Middle East form the backdrop to Silver’s sell-off. The tensions are stoking fears of disruption to global energy supplies and a resurgence in inflationary pressure.

Plans for renewed military strikes against Iran after the US midterm elections have reportedly been prepared by the United States (US) and Israel, according to The New York Times. Iran’s energy infrastructure could be among the targets.

Fresh attacks on the Shaybah Oil field and King Fahd International Airport have also been reported as tensions between Saudi Arabia and the Houthis intensify. Underscoring the worsening regional security situation, the US State Department has ordered non-emergency government employees and their families to leave Saudi Arabia.

Nearly 2% higher on Thursday, West Texas Intermediate (WTI) crude is rebounding towards $98.65 after approaching $100. These developments are driving Oil prices upwards.

The rise in energy costs is deepening concerns that inflation will persist, clouding the monetary policy outlook. To prevent consumer price growth from accelerating again, central banks may need to keep interest rates restrictive for longer.

For Silver, which pays no interest, these conditions are particularly adverse. As borrowing costs and government bond yields rise, so does the opportunity cost of holding non-yielding precious metals. That makes them less attractive relative to interest-bearing assets.

Next week’s Fed monetary policy meeting is now the focus for investors. Following September’s increase of 25 basis points (bps), the US central bank is widely expected to hold interest rates steady. Expectations of a further increase in December are nevertheless strengthening. The CME FedWatch Tool puts the market-implied probability of an additional rate hike before year-end at 89%.

Support for the US Dollar from these hawkish expectations is putting further pressure on Silver. A stronger dollar raises the metal’s cost for investors using other currencies.

Silver: technical outlook

At $55.17 on the four-hour chart, XAG/USD retains a bearish near-term bias. The price remains well below both the 100-period simple moving average (SMA) at $59.13 and the 200-period SMA at $61.75. Horizontal support at $54.77 sits just beneath the pair. Meanwhile, the Relative Strength Index (14) has slipped into oversold territory near 29, suggesting downside momentum is stretched without yet overturning the prevailing bearish structure.

A move higher would first encounter resistance at $56.60, then the recent horizontal barrier at $58.00. Further up, the 100-period SMA at $59.13 and the 200-period SMA at $61.75 strengthen a broader supply zone. Conversely, a break below $54.77 would leave scope for further losses and preserve the bearish bias, despite the oversold RSI reading.

(The technical analysis of this story was written with the help of an AI tool. Know more.)