Silver falls as Fed decision looms, Oil-driven inflation adds pressure

Finance

Silver falls as Fed decision looms, Oil-driven inflation adds pressure

Silver (XAG/USD) trades around $79.70 on Monday at the time of writing, down 1.12% on the day. The white metal is under pressure as investors adopt a cautious stance ahead of this weeks monetary policy announcements from major central banks, particularly the Federal Reserve (Fed).

Markets widely expect the Fed to keep its benchmark interest rate unchanged in the 3.50%-3.75% range at Wednesday‘s meeting, according to the CME FedWatch tool. If confirmed, it would mark the second consecutive pause following the central bank’s previous easing cycle. A prolonged pause in monetary easing tends to weigh on non-yielding assets such as Silver, as higher interest-rate expectations increase the opportunity cost of holding precious metals.

Inflation concerns linked to surging energy prices are also contributing to the cautious market tone. The escalation of geopolitical tensions in the Middle East has pushed Oil prices higher and raised fears of persistent inflationary pressures. Higher gasoline costs in the United States (US) are already increasing the financial burden on households, which could keep inflation expectations elevated and encourage policymakers to maintain restrictive monetary conditions for longer.

At the same time, geopolitical developments continue to shape sentiment in the precious metals market. The United States recently targeted Irans key Oil export hub on Kharg Island, heightening fears over global energy supply disruptions. Although Washington has suggested that the conflict could end within weeks and has discussed forming an international coalition to secure shipping through the Strait of Hormuz, the ongoing tensions keep a layer of uncertainty in financial markets.

This uncertain geopolitical backdrop could help limit deeper declines in Silver prices. Safe-haven assets, such as Silver, tend to attract demand during periods of heightened geopolitical risk, which may cushion the downside even as expectations of prolonged higher interest rates weigh on investor appetite for non-yielding assets.