21.10.202600:48 Forex Analysis & Reviews: XAG/USD. Price Analysis. Forecast. Silver's Recovery Limited by Fed Policy Outlook

On Tuesday, silver (XAG/USD) continued to recover: at the time of writing, the price trades above the round $57.00 level. A weaker US dollar and lower US Treasury yields support the metal. Dynamics of those instruments shifted after reports of potential diplomatic progress between the US and Iran, which initially triggered a sharp drop in oil prices, although that report was later denied.

According to Israel's Channel 12, Pakistan's military leadership presented a compromise proposal to Iranian officials that received preliminary approval from both Washington and Tehran. Those reports raised hopes of a diplomatic breakthrough that could ease Middle East tensions and reduce the risk of supply disruptions. However, a diplomat involved in the talks later denied that an agreement was imminent, underscoring the uncertainty.

The oil market reacted to the initial reports with a notable decline: WTI fell toward Friday's low after briefly rising above $100 earlier in the session. Cheaper oil reduces inflationary pressure linked to high energy costs — a problem that became acute after the conflict began in late February.

Expectations of cheaper energy are also weighing on Treasury yields and the dollar. The result is a friendlier environment for non-yielding assets, including silver.

Yet the Federal Reserve's policy outlook may limit further gains in silver. Recent US inflation prints strengthened expectations that the Fed could raise rates again before year-end. September's CPI and PPI beat forecasts, signaling persistent price pressure. While lower oil helps ease those risks somewhat, energy prices remain well above pre-conflict levels.

CME FedWatch shows the market prices in roughly a 17% chance of a hike at the Oct 27–28 meeting and about a 92% chance of a hike by December.

In the coming days, attention should focus on initial jobless claims on Thursday and the preliminary S&P Global PMIs for October on Friday. During the Fed's blackout period ahead of next week's decision, these releases could shift rate-hike expectations and determine whether silver retains room to extend its recovery.

Technically, silver met resistance at the 9-day EMA and found support at the round $57.00 level, with further support near $56.40. Oscillators are negative, and the bears have the edge.