Silver retreats toward $65 ahead of Fed Minutes as energy tensions cloud outlook

• Silver loses more than 1% on Tuesday and trades around $65.00, while remaining within its recent consolidation phase.
• Fading expectations of a US interest rate hike support the white metal, but surging energy prices fuel inflation concerns.
• Investors now await the Fed Minutes on Wednesday for fresh clues about the interest-rate outlook.

Silver (XAG/USD) declines on Tuesday and trades around $65.00 at the time of writing, down 1.20% on the day. The white metal nevertheless remains trapped within the consolidation range that has dominated trading for about a week, as opposing forces prevent a clear direction from emerging.

The monetary policy outlook in the United States (US) remains one of the main drivers of Silver prices. Recent weaker-than-expected US economic data have prompted investors to scale back expectations of another interest rate hike by the Federal Reserve (Fed) at its September meeting.

Weakness in the US labor market is contributing to this shift in expectations. The latest July Nonfarm Payrolls (NFP) report surprised to the downside, while recent inflation and consumer spending data have also reduced pressure for further monetary tightening.

According to the CME FedWatch Tool, markets now see around a 35% chance of a Fed rate hike in September, down from 47% a month ago. Reduced expectations of higher interest rates tend to support Silver, as lower rates decrease the opportunity cost of holding non-yielding assets.

However, this support is being offset by the sharp rise in energy prices amid persistent tensions between the United States (US) and Iran. The failure to renew the ceasefire agreement and uncertainty surrounding the naval blockade of Iranian ports are fueling concerns over global energy supplies.

Higher Oil prices could therefore reignite inflationary pressures worldwide. Energy-driven inflation could encourage major central banks to keep monetary policy restrictive for longer, or even consider further rate hikes, which would represent a headwind for non-yielding precious metals such as Silver.

At the same time, geopolitical tensions provide some support to the white metal through demand for safe-haven assets. Uncertainty surrounding relations between Washington and Tehran therefore leaves Silver caught between inflation risks stemming from higher energy prices and defensive flows driven by geopolitical tensions.

Investors now turn their attention to the Minutes of the July Federal Open Market Committee (FOMC) meeting, due on Wednesday. The document could provide further insight into how Fed officials assess the balance of risks and their willingness to continue tightening monetary policy following recent signs of a slowdown in the US economy.

Against this backdrop, Silver could remain sensitive to shifts in US interest-rate expectations. A less restrictive tone in the Minutes could weigh on Treasury yields and the US Dollar (USD), potentially supporting the white metal, while persistent inflation concerns could continue to limit its rebound potential.

XAG/USD technical analysis

In the one-hour chart, XAG/USD trades at $65.00, retaining a bearish near-term tone as price has slipped below the 100-hour simple moving average (SMA) at $65.26 while still holding above the 200-hour SMA at $64.47. This positioning suggests the latest pullback is pressuring the short-term trend, with the longer-term average offering interim cushioning. The Relative Strength Index (RSI) at 41.38 stays in mildly bearish territory, hinting at waning upside momentum rather than outright oversold conditions.

On the downside, initial support emerges at the 200-hour SMA around $64.47, followed by a horizontal level near $64.20, before deeper floors at $63.51 and $63.00. On the topside, immediate resistance is seen at the 100-hour SMA at $65.26; a sustained recovery above this barrier would open the way toward the next notable cap at $66.80.

(The technical analysis of this story was written with the help of an AI tool. Know more.)