Near $54.00: Silver Price Forecast as XAG/USD Drops on Higher Oil Prices

• Rising oil prices weigh on Silver, stoking inflation concerns and expectations of additional Fed rate increases.
• An inconclusive Israeli election adds geopolitical uncertainty, while support for Netanyahu appears to be fading.
• 84.4% is the market-implied probability of December tightening. Markets anticipate an October Fed rate hold.

$54.10 per troy ounce is the approximate Silver price (XAG/USD) in Wednesday’s Asian session. The metal has slipped after modest gains the day before. Traders are awaiting the US Federal Reserve’s policy announcement later in the day.

Higher crude prices are reviving inflation concerns and expectations of further interest rate increases, putting fresh pressure on non-yielding Silver. Oil advanced as traders tracked Israel’s election results. The outcome could reshape the country’s political landscape and the course of the Middle East conflict.

With votes still being counted, neither political bloc appears to command a clear majority. Exit polls point to a close contest, placing Prime Minister Benjamin Netanyahu level with opposition leader Gadi Eisenkot. The preliminary results nevertheless suggest declining support for Netanyahu, long the dominant figure in Israeli politics, who has led the country through nearly three years of conflict.

A 92.8% probability of an October rate hold is priced into markets, according to CME FedWatch Tool data. Attention is also on the Federal Reserve, which is widely expected to leave its benchmark rate within the 3.75% to 4.0% range at Wednesday’s policy decision. Investors will therefore look to Fed Chair Kevin Warsh’s subsequent press conference for signals on the rate outlook. This is particularly important with markets assigning an 84.4% probability to a December rate increase.

Energy trading has become quieter despite recent precious-metals volatility, according to Scotiabank strategists. They describe crude prices as having "settled into tight consolidation ranges." WTI remains "steady just above $100/bbl" and Brent holds "above $115/bbl," they note, highlighting relative stability across the benchmark crude contracts.

Leaving further tightening on the table should continue to support the US currency, Societe Generale strategists argue. Their view is that “if the FOMC message (whatever that looks like in the brave new world) keeps December hike expectations alive, our bias is to remain dollar-positive,” while they also caution that, “unless the ECB is very hawkish, European economic fundamentals will weigh.”