Silver (XAG/USD) fell 0.2% on Tuesday, trading at about $48.60 per troy ounce after hitting a 14-year high of $48.77 on Monday. This drop happened as the US Dollar (USD) gained strength, which impacted silver’s upward trend. The US Dollar Index (DXY) climbed 0.4% to 98.53, driven by political uncertainties in France and Japan. France faced the resignation of its Prime Minister, while Japan is considering new policies under fresh leadership. This uncertainty increased expectations for monetary easing, affecting the JPY and DXY. Even though a stronger USD poses challenges for precious metals, there are hopes that the US Federal Reserve (Fed) will take a more lenient approach, which may support silver. Commerzbank forecasts that silver could reach $49 per ounce by the end of the year, with further gains expected next year due to ongoing geopolitical tensions. All eyes are on comments from Fed officials, including Michelle Bowman, which could signal future rate cuts. Clear signals of easing policies could lead to increased silver demand, pushing it closer to its record high of $49.80. The drop in silver on Tuesday doesn’t negate its upward trend, suggesting a possible retest of the record high. However, the current bullish pattern seems extended, with the Relative Strength Index (RSI) in overbought territory. A fall below the uptrend channel, around $47.20, could result in a larger correction, with support near $41. As silver consolidates near its 14-year high, the market balances the potential for future Fed rate cuts against the current strength of the USD. The dollar’s rise, driven by political issues in France and Japan, is temporarily capping prices. This creates a challenging situation for traders, with silver remaining above key support levels. The expectation of a Fed policy shift by year-end is the main factor that could push prices higher. In late 2023 and early 2024, silver climbed over 15% after the Fed first suggested it would move away from rate hikes. Derivative traders might want to buy call options with strike prices close to the all-time high of $49.80, targeting expirations in December 2025 or January 2026. However, it’s crucial to heed technical warnings since the daily RSI has remained above 70 (overbought) since September 19. Historically, such extended overbought conditions often lead to short-term price corrections of at least 5-8%. This indicates that buying put options with a strike price around $47 might be a good hedge against a pullback toward the bullish channel’s support line. Implied volatility is another important factor. The Cboe Silver ETF Volatility Index (VXSLV) is currently at 35.2, its highest level since the industrial metals scare in August 2025. This high volatility boosts option premiums, making strategies that involve selling options, like cash-secured puts or credit spreads below the $47.20 support level, appear particularly attractive. Traders can capitalize on this high premium while betting that the upward trend will hold. This week, speeches from Fed officials will be crucial, as any unexpectedly hawkish comments could trigger a correction. A smart strategy for the upcoming weeks may involve a “collar.” In this approach, a trader holding a long position buys a protective put option and sells a call option at the same time. This protects against a sharp drop while generating income, creating a defined trading range until the Fed offers clearer guidance.

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