• Silver falls sharply on Thursday, losing 5% as expectations of prolonged restrictive monetary policy weigh on precious metals.
  • Rising Oil prices fuel inflation concerns amid escalating tensions in the Middle East.
  • Markets expect the Fed to keep interest rates unchanged next week, with another hike anticipated in December.

Silver (XAG/USD) extends its sharp decline on Thursday, falling 5% to trade around $55.05 at the time of writing, after hitting its lowest level in three months at $55.01. The precious metal faces intense selling pressure as rising inflation concerns reinforce expectations that the Federal Reserve (Fed) will maintain elevated interest rates for longer, while a rebound in the US Dollar (USD) adds to the downward momentum.

The decline in Silver comes amid escalating geopolitical tensions in the Middle East, which are raising concerns about potential disruptions to global energy supplies and renewed inflationary pressures.

According to The New York Times, the United States (US) and Israel have reportedly prepared plans for renewed military strikes against Iran following the US midterm elections, potentially targeting the country's energy infrastructure.

Meanwhile, tensions between Saudi Arabia and the Houthis continue to escalate, with fresh attacks reported on the Shaybah Oil field and King Fahd International Airport. The US State Department has also ordered non-emergency government employees and their families to leave Saudi Arabia, highlighting the deterioration in regional security.

These developments are pushing Oil prices higher, with West Texas Intermediate (WTI) crude rebounding toward $98.65, up nearly 2% on Thursday, after approaching the $100 level.

Higher energy prices are fueling concerns about persistent inflation and complicating the monetary policy outlook. Central banks may be forced to maintain restrictive interest rates for longer to prevent another acceleration in consumer prices.

This environment is particularly unfavorable for Silver, which does not generate interest income. Higher borrowing costs and elevated government bond yields increase the opportunity cost of holding non-yielding precious metals, reducing their appeal compared with interest-bearing assets.

Investors are now turning their attention to next week's Fed monetary policy meeting. The US central bank is widely expected to leave interest rates unchanged after raising borrowing costs by 25 basis points (bps) in September. However, expectations of another rate increase in December continue to strengthen. According to the CME FedWatch Tool, markets assign an 89% chance to an additional rate hike before the end of the year.

These hawkish expectations are supporting the US Dollar, making Silver more expensive for investors holding other currencies and adding further pressure on the precious metal.

Silver technical analysis

In the four-hour chart, XAG/USD trades at $55.17, maintaining a bearish near-term bias as price holds well below the 100-period simple moving average (SMA) at $59.13 and the 200-period SMA at $61.75. The pair is hovering just above horizontal support at $54.77, while the Relative Strength Index (14) slips into oversold territory near 29, which hints at stretched downside momentum but does not yet negate the prevailing downward structure.

On the topside, initial resistance emerges at $56.60, followed by the recent horizontal barrier at $58.00, with the 100-period SMA at $59.13 and the 200-period SMA at $61.75 reinforcing a broader supply zone further up. On the downside, a break below $54.77 would open the door to additional weakness, keeping the bearish bias intact despite the oversold RSI backdrop.

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

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.