Silver (XAG/USD) traded near $74.10 on Monday, down 2.23%, after falling to an intraday low of about $72.61. It tried to steady, but stayed under pressure as the US Dollar strengthened amid rising geopolitical tensions.
Sentiment weakened after US–Iran peace talks failed over the weekend, with efforts for a lasting Middle East ceasefire not succeeding. The US announced military measures to block maritime traffic linked to Iranian ports, focusing on the Strait of Hormuz, a major route for global energy flows.
Oil Prices And Inflation Expectations
Concerns about energy supply lifted Oil prices, with West Texas Intermediate trading around $97 per barrel. Higher Oil prices raised inflation concerns across markets.
With inflation risks rising, markets shifted expectations for Federal Reserve policy towards rates staying higher for longer, or possibly rising further. Higher rates reduce demand for non-yielding assets such as Silver by increasing the cost of holding them.
The early-week US data calendar is light, with attention on Tuesday’s US Producer Price Index (PPI) release. PPI data may add information on inflation trends and the path of Fed policy.
The recent failure of US-Iran negotiations is creating clear headwinds for silver, pushing it down as the US Dollar strengthens. The immediate reaction in the market suggests that short-term bearish strategies, such as buying put options or shorting futures contracts, could be favorable. This pressure is likely to continue as long as geopolitical tensions in the Middle East escalate.
Fed Policy And Silver Positioning
Spiking oil prices, now around $97 per barrel, are fueling inflation concerns and increasing the likelihood that the Federal Reserve will keep interest rates higher for longer. After last month’s Consumer Price Index (CPI) showed inflation remains persistent at a 3.5% annual rate, the market is now pricing in fewer rate cuts for this year. This environment raises the opportunity cost of holding non-yielding assets like silver, making it less attractive.
We saw a similar pattern during the 2022-2023 period when energy price shocks prompted aggressive rate hikes from central banks. Back then, silver’s role as a safe haven was overshadowed by the appeal of higher yields, causing its price to lag. History suggests that when a hawkish Fed is battling inflation, it often wins the tug-of-war against geopolitical uncertainty for silver traders.
Traders should pay close attention to the Producer Price Index (PPI) report coming out this Tuesday. A high PPI reading would confirm that inflationary pressures are still building, likely strengthening the dollar further and adding more downward pressure on silver. This could be a key trigger for initiating or adding to bearish positions.
While the monetary outlook is challenging, we must remember that industrial demand provides a strong underlying support for silver. The global push for solar energy, with solar installations growing by over 30% in 2025, continues to absorb a significant amount of the metal’s supply. This strong physical demand could create a floor for prices if the current diplomatic tensions begin to cool.
The gold-to-silver ratio has widened to over 90, up from an average of 84 last year, signaling that silver is significantly underperforming gold. This suggests that while gold is benefiting from a safe-haven bid, silver is being weighed down more by industrial and monetary factors. This divergence could be exploited through pairs trading, such as going long gold futures and short silver futures.
