Silver (XAG/USD) slid to fresh year-to-date lows on Wednesday as hawkish Federal Reserve expectations and a firmer US Dollar kept pressure on the metal. It was trading around $59.39, the weakest level since December 2025, extending a pullback from January’s all-time high of $121 after last year’s 148% rally. The decline deepened as an energy shock linked to the US-Iran conflict revived inflation concerns, pushing US Treasury yields higher and prompting markets to drop expectations for Fed rate cuts this year.
After last week’s hawkish hold, markets have moved to price the possibility of a rate hike later in 2026. CME FedWatch shows a 70% probability of higher borrowing costs in September, a headwind for non-yielding silver, while the US Dollar Index (DXY) rose to about 101.69, its highest since May 2025. Technically, the break below $60 points to lost support, though attention turns to Thursday’s PCE Price Index report. XAG/USD remains below the 50-day, 100-day and 200-day SMAs, with RSI at 29.61 and MACD negative; resistance sits near $69.41, then $73.92 and $76.44, while sustained trading under $60 risks a move towards $55.
Federal Reserve Policy and Market Impact
Given the hawkish Federal Reserve and a strong dollar, we see the current drop in silver as a continuing trend, not a buying opportunity. The market is finally accepting that interest rate cuts are off the table for this year, with a 70% chance of a rate *hike* now priced in for September. This environment is fundamentally negative for non-yielding assets like silver.
Historically, silver has performed poorly during aggressive Fed tightening cycles, such as the one seen in 2022, when rising real yields crushed precious metals. Recent inflation reports, showing core inflation remaining stubbornly above 3%, support the Fed’s tough stance. Therefore, we believe the path of least resistance for silver remains downward.
Trading Strategy and Technical Outlook
In the coming weeks, we are looking to purchase put options with strike prices below $58 to capitalize on a potential move toward the $55 support level. The recent break below the critical $60 mark suggests sellers are in full control. This strategy offers a defined-risk way to profit from the expected continued weakness.
However, we will be cautious ahead of Thursday’s Personal Consumption Expenditures (PCE) report. A surprisingly soft inflation number could trigger a sharp, short-covering rally, so we will avoid adding significant new bearish positions until after that data is released. Any unexpected strength would be short-lived given the broader macro pressures.
While the Relative Strength Index is in oversold territory, we see this more as a sign of strong downward momentum than an imminent reversal. We would view any bounce toward the $65-$69 area as an opportunity to sell or initiate bear call spreads. As long as silver remains below its major moving averages, the dominant trend is down.
The dollar’s strength is also a major headwind, with the US Dollar Index hitting its highest level since May of last year. This isn’t just about the Fed, as policy divergence with other central banks that have begun easing cycles provides another tailwind for the dollar. This makes silver, priced in dollars, even more expensive for foreign buyers.
