FX.co ★ Wiking | XAG/USD, SILVER

Silver (XAG/USD) continued its dramatic fall in Thursday's trading session, down 5% to $55.05, to three-month lows. Selling pressure on the precious metal has increased amid inflation worries, as the Federal Reserve (Fed) is expected to keep interest rates high for an extended period, coupled with a stronger US dollar (USD). Silver prices are down amid rising geopolitical tensions in the Middle East. As per The New York Times, the US and Israel have made plans for fresh military action against Iran post-US midterm election, possibly against the energy installations in Iran. However, on the other hand, the tension between Saudi Arabia and the Houthis continues to build up, as new strikes are reported in the Shaybah Oil field and King Fahd International Airport in Saudi Arabia. In addition, the US State Department has issued an advisory urging all non-essential personnel and their families to evacuate Saudi Arabia. All of this is driving up oil prices, with WTI crude back near the $98.65 mark, up nearly 2% on Thursday after touching $100. High energy prices are fueling inflation worries and complicating central banks' monetary policy decisions. Central banks may have to keep interest rates higher longer to avoid further increases in the core price level. This situation poses a difficult scenario for silver, which earns no interest income. Higher borrowing costs and rising government bond yields increase the opportunity cost of owning non-interest-bearing metals. Investor focus now switches to the Fed monetary policy meeting slated for next week. The US central bank is likely to keep interest rates steady after the 25-basis-point (bps) hike in September. Nevertheless, expectations of yet another rate hike in December are gaining momentum. According to the CME FedWatch Tool, the probability of a rate hike before year-end is 89%. This rate-hiking outlook has bolstered the US Dollar, making silver costlier for holders of other currencies. On the four-hour chart, XAG/USD is trading at $55.03, continuing the short-term bearish trend, well below the 100-period SMA at $59.13 and the 200-period SMA at $61.75. The pair is trading just above the horizontal support at $54.77, while the RSI (14) is at 29, suggesting an overbought move to the downside but not invalidating the prevailing bearish formation. On the upside, the first resistance is at $56.60, followed by recent horizontal resistance at $58.00, while the 100-period SMA at $59.13 and the 200-period SMA at $61.75 mark a broader supply area. On the downside, a breach of $54.77 will add losses and support the existing bearish outlook despite oversold RSI conditions.