Silver traded near $80.80 per troy ounce in early European trading on Tuesday after small gains in the prior session. Demand for non-yielding metals stayed weak as expectations for near-term US rate cuts eased amid inflation worries linked to higher energy prices. The Middle East war pushed oil prices up, which increased inflation concerns and reduced the likelihood of near-term monetary easing. Markets expect the Federal Reserve to keep rates unchanged at 3.50%–3.75% at Wednesday’s meeting, based on the CME FedWatch Tool.

Rates Inflation And Silver

If rates remain unchanged, it would be the second straight pause following the Fed’s earlier easing cycle. In Australia, the Reserve Bank of Australia raised the Official Cash Rate to 4.10% from 3.85% at its March meeting on Tuesday. The Bank of Japan is expected to keep its policy rate at 0.75% on Thursday. Silver later found support as the US Dollar and Treasury yields eased alongside lower oil prices. Crude fell after several tankers travelled safely through the Strait of Hormuz, and major economies are expected to release petroleum reserves to reduce supply risks. US Treasury Secretary Scott Bessent said the US is allowing Iran to keep shipping crude through the Strait, while President Donald Trump is seeking international support to protect commercial activity there. We are seeing silver caught in a tug-of-war around the $80.80 level. Persistent inflation, driven by the ongoing Middle East conflict and high energy prices, is providing support for the metal. However, this is being countered by expectations that the Federal Reserve will remain firm on interest rates.

Key Catalysts To Watch

The upcoming Fed decision to likely hold rates at 3.75% creates significant uncertainty for derivative traders. Looking back at the Fed’s pause in 2024, we saw similar periods lead to choppy price action in silver as the market debated the central bank’s next move. This suggests we should prepare for heightened volatility rather than a clear directional trend in the immediate term. Given this uncertain outlook, options strategies that benefit from price swings could be effective. With precious metal volatility indices ticking up near 18.5, indicating market anxiety, traders might consider straddles or strangles. These positions can profit from a significant price break in either direction following the Fed announcement. We must keep a close watch on crude oil prices, which pulled back slightly to $105 a barrel after reports of safe passage through the Strait of Hormuz. Last week’s spike to over $110 demonstrated how quickly geopolitical flare-ups can reignite inflation fears. Any renewed disruption in the region could send silver sharply higher, regardless of the Fed’s short-term stance. The Reserve Bank of Australia’s recent rate hike to 4.10% should not be ignored, as it signals that global inflationary pressures are not contained. This move, driven by Australia’s own stubborn 4.5% CPI reading, reminds us that the Fed doesn’t operate in a vacuum. A hawkish shift from other G10 central banks could provide a supportive floor for silver prices in the weeks ahead. Create your live VT Markets account and start trading now.

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