Silver (XAG/USD) fell almost 2.3% to about $76.00 in European trading on Thursday. Selling pressure came as oil extended gains for a third day.
WTI rose to around $95.80, the highest in a week, while the Strait of Hormuz stayed closed. The route carries almost 20% of global energy supply, and remains shut despite a ceasefire extension between the US and Iran.
Iran said Hormuz will stay closed until the US lifts a blockade on Iranian sea ports. The move has frozen Iranian business activity.
Higher oil prices have raised global inflation expectations, which can reduce the scope for interest-rate cuts. This tends to weaken demand for non-yielding assets such as silver.
The US Dollar also strengthened on expectations the Federal Reserve will not cut rates this year. CME FedWatch puts the chance of rates staying at 3.50%–3.75% in December at 76.8%, and the DXY hit a weekly high near 98.70.
XAG/USD traded near $76, with the 20-day EMA at $76.84 acting as resistance. RSI was 47.85, while resistance sits around $83.00 and support levels are $72.60 and $68.28, with $90.00 as another upside level.
With oil prices firming up near $95.80 due to the ongoing closure of the Strait of Hormuz, we see inflationary pressures mounting. This strengthens the Federal Reserve’s case to hold interest rates steady, which is a significant headwind for a non-yielding asset like silver. The strong US Dollar, with the DXY hitting 98.70, further dampens silver’s appeal.
Given the technical weakness and the bearish macro backdrop, we should consider buying put options on silver. The price is currently struggling below the 20-day EMA, and a breakdown of the ascending triangle pattern could see a swift move towards the $72.60 support level. This provides a clear target for near-term bearish trades with defined risk.
This market dynamic is reminiscent of the environment we saw back in 2023, when the Fed aggressively hiked its policy rate to a peak of 5.5% to combat inflation. During that period, sustained US dollar strength and high interest rates placed a firm cap on precious metal prices for extended periods. The current market expectation of rates holding at 3.50%-3.75% suggests this historical pressure is re-emerging.
Alternatively, selling call credit spreads with strike prices safely above the key $83.00 resistance level could be a prudent strategy. This allows us to collect premium from the market’s fear of a breakout while the current downward pressure persists. We must be prepared to close these positions if a diplomatic resolution in the Strait of Hormuz suddenly emerges, as that would likely cause oil prices to fall and silver to rally.
For now, the trade is directly tied to energy prices and Fed expectations. The fact that the Strait of Hormuz is responsible for the transit of nearly 20% of global oil supplies means this is not a minor disruption. As long as this chokepoint remains closed, we expect oil to remain elevated, the dollar to stay strong, and silver to stay vulnerable to further downside.
