Silver prices dropped on Tuesday as traders took advantage of Monday’s gains. Silver was trading at about $57.50, down 0.70% for the day. This decrease comes as traders await economic data from the US, including the ISM Services index and the PCE index, which affect expectations for Federal Reserve policies. A slight rebound in the US Dollar and rising US Treasury yields are putting pressure on precious metals. However, Silver is seeing some support due to expectations that the Federal Reserve may ease monetary policy, with a possible 25-basis-point cut expected. Even without major US data releases on Tuesday, Silver continues to respond to movements in the USD and the overall market mood.

US Federal Reserve Expectations

Investors are looking ahead to indicators that could influence Federal Reserve decisions. Notable reports include ISM’s Services PMI, ADP employment data on Wednesday, and the PCE report on Friday, which is the Fed’s preferred measure of inflation. Ongoing geopolitical issues, especially concerning Russia and Ukraine, are also boosting safe-haven demand for Silver. Traders value Silver for its potential to protect against inflation. Its prices are shaped by geopolitical tensions, USD fluctuations, and industrial demand. Silver often moves in tandem with Gold, and the Gold/Silver ratio can reveal the relative value of these metals. With Silver recently pulling back to around $57.50, we view this as a temporary dip for profit-taking, not a trend reversal. The market is closely watching the Federal Reserve, with strong expectations for an interest rate cut next week. This outlook provides a solid support level for Silver prices, limiting how much they could drop. As of today, December 3rd, 2025, there’s an 85% chance of a 25-basis-point cut, according to the CME FedWatch Tool. This confidence follows the November PCE report, which indicated core inflation dropping to 2.6%, nearing the Fed’s target. Any price dip ahead of this week’s key data should be seen as a potential buying chance.

Trading Strategy Considerations

For derivative traders, this scenario makes buying call options appealing to benefit from a confirmed policy shift by the Fed. We are particularly focused on the ISM Services report coming out tomorrow; a weaker number might strengthen rate-cut expectations and likely drive Silver prices higher. We recall a similar situation in mid-2024 when signs of economic slowdown led to a significant rally in precious metals. The current Gold/Silver ratio, about 75, suggests that Silver is undervalued relative to Gold historically. This ratio tends to narrow during periods of easing, indicating that Silver could have more upside potential. Given this historical context, holding a long position in Silver seems wise. Still, industrial demand poses a slight challenge. The latest manufacturing PMI data from November 2025 showed a reading of 49.8, indicating a mild contraction, which could dampen some industrial buying of Silver. This creates a balance between strong monetary support and weaker physical demand. The main risk to this outlook comes from unexpected results in the PCE data on Friday or a hawkish tone from the Fed next week. To manage this risk, consider using a collar strategy—buying a protective put option while selling a call option—to hedge a core long position. This allows for upside participation while limiting potential losses if the Fed delays its easing. Create your live VT Markets account and start trading now.

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