$57.00 Breached: Silver Price Forecast as XAG/USD Slides on Oil-Driven Inflation Fears

Disruption to oil infrastructure from drone strikes in the Middle East and Ukraine lifts energy costs and inflation concerns, weighing on Silver.
Market uncertainty remains elevated amid the Middle East conflict and Iran’s calls for relief from US sanctions.
90% odds of a December rate increase weigh on non-yielding Silver, although traders expect rates to remain unchanged next week.

$56.80 per troy ounce is Silver’s approximate trading level during Thursday’s Asian session. Silver (XAG/USD) is down for a second consecutive day. A surge in oil prices is stoking inflation concerns and strengthening expectations of a Federal Reserve (Fed) rate increase, putting pressure on the non-yielding metal.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A drone strike on Saudi Aramco’s Shaybah oil field, which caused two casualties, pushed crude oil prices higher. The attack heightened Middle East geopolitical tensions and concerns about possible interruptions to energy supplies. Meanwhile, Ukraine launched extensive drone attacks on key Russian oil infrastructure this week. The strikes signalled Kyiv’s intention to obstruct Moscow’s planned increase in diesel exports under a recent agreement between Presidents Trump and Putin.

Iranian Foreign Minister Abbas Araghchi added to the region’s geopolitical complexity on Wednesday, saying the United States must end its naval blockade and show a genuine commitment to a diplomatic solution. He stressed that Tehran was prepared to restart talks if there was tangible evidence of a sincere American effort to secure a just and lasting end to the conflict.

Energy supply risks grow as new Cold War redraws supply chains

Recent US policy changes and regional tensions make the shifting geopolitical landscape impossible to ignore, according to Rabobank analysts. They argue that “it matters enormously because energy still does, especially in a new Cold War along supply chains.” Their assessment is that changing strategic alliances and trade routes are making energy security more central. This leaves markets more vulnerable to abrupt disruptions and intensifies volatility in oil-linked assets.

An 84% probability of unchanged interest rates at next week’s meeting is priced in by traders, alongside a 90% chance of a December increase, according to the CME FedWatch Tool. Market participants continue to scrutinise the Federal Reserve’s (Fed) policy path ahead of the meeting. Last week, Fed Chair Kevin Warsh offered no guidance on whether further rate rises would be needed or when they might occur, leaving uncertainty unresolved.

Silver: key questions

Reasons investors choose Silver

Historically a store of value and a means of exchange, Silver remains a heavily traded precious metal. Gold attracts greater interest, but traders may choose Silver for portfolio diversification, its intrinsic value or its potential to hedge against high inflation. Exposure is available through physical coins and bars, or through instruments such as exchange-traded funds that track Silver’s price in international markets.

Key drivers of Silver prices

Interest rates, currency movements and supply-demand conditions are among the many influences on Silver prices. Lower rates generally support the metal because it pays no yield. Geopolitical unrest or concerns about a severe recession can also lift Silver through safe-haven demand, though this effect is weaker than for Gold. With Silver quoted in US dollars (XAG/USD), movements in the US Dollar (USD) also matter: dollar strength tends to restrain prices, while weakness is likely to lift them. Investment demand, mine supply and recycling rates are further price drivers. Silver is considerably more abundant than Gold.

Industrial demand’s role in Silver pricing

Among metals, Silver has one of the highest levels of electrical conductivity, exceeding both Copper and Gold. This makes it widely used in industry, notably electronics and solar energy. Stronger demand can lift prices, while weaker demand tends to depress them. Economic developments in the US, China and India can also generate price fluctuations. Large industrial sectors in the US and especially China consume Silver across a range of processes. In India, consumer demand for Silver jewellery is another important influence on prices.

Silver’s relationship with Gold prices

The two metals share similar safe-haven characteristics, so gains in Gold are typically accompanied by gains in Silver. Silver generally tracks Gold’s price direction. To assess their relative valuations, investors may use the Gold/Silver ratio, which measures how many ounces of Silver equal the value of one ounce of Gold. A high reading may be interpreted by some investors as evidence that Silver is undervalued or Gold overvalued. A low reading, by contrast, may indicate that Gold is undervalued relative to Silver.