Silver Price Forecast: Oil surge stokes inflation concerns as XAG/USD falls below $57.00

• Higher energy prices and mounting inflation concerns weigh on Silver as drone attacks in the Middle East and Ukraine disrupt oil infrastructure.
• Markets remain unsettled by the Middle East conflict and Iran’s calls for relief from US sanctions.
• A 90% probability of a December rate rise weighs on non-yielding Silver, although traders expect rates to remain unchanged next week.

At around $56.80 per troy ounce in Thursday’s Asian session, Silver (XAG/USD) is on course for a second consecutive day of losses. The non-yielding metal remains under pressure as sharply higher oil prices stoke concerns about inflation and strengthen expectations of an interest rate rise by the Federal Reserve (Fed).

A drone strike on Saudi Aramco’s Shaybah oil field, which caused two casualties, pushed crude oil prices higher, deepening geopolitical tensions in the Middle East and fuelling fears of possible disruptions to energy supplies. Meanwhile, this week’s large-scale Ukrainian drone attacks on key Russian oil infrastructure signalled Kyiv’s intention to obstruct Moscow’s planned increase in diesel exports under a recent agreement between Presidents Trump and Putin.

Further complicating the regional geopolitical picture, Iranian Foreign Minister Abbas Araghchi said on Wednesday that the United States must remove its naval blockade and show a genuine commitment to resolving the conflict through diplomacy. Tehran was prepared to return to negotiations, Araghchi stressed, provided there was tangible evidence of a sincere American effort to secure a just and lasting end to the conflict.

Energy supply risks increase as a new Cold War redraws supply chains

The changing geopolitical landscape must not be overlooked, according to analysts at Rabobank. They argue that recent changes in US policy and tensions across the region highlight how “it matters enormously because energy still does, especially in a new Cold War along supply chains.” They see the realignment of strategic alliances and trade routes as strengthening the importance of energy security, increasing markets’ vulnerability to abrupt disruptions and intensifying volatility in Oil-linked assets.

Ahead of next week’s meeting, investors are scrutinising the Federal Reserve’s (Fed) monetary policy outlook. Last week, Fed Chair Kevin Warsh gave no indication of when further interest rate increases might be needed, or whether they would be necessary, leaving uncertainty unresolved. The CME FedWatch Tool shows traders assigning an 84% probability to unchanged rates next week and a 90% probability to a rate increase in December.