• Silver prices may depreciate amid rising expectations of tighter monetary policy.
• Markets price in roughly a 94% probability of a Fed rate hike in December.
• BoJ’s Ueda signaled the possibility of further monetary tightening.

Silver price (XAG/USD) gains ground for the second successive day, trading around $57.40 per troy ounce during Asian hours on Tuesday. However, Silver prices may fall as higher oil prices boost inflation concerns and reinforce expectations of tighter monetary policy.

Oil jumps on Strait of Hormuz shipping attacks

Analysts at Rabobank report that oil prices “surged following further reports of attacks on shipping in the Strait of Hormuz,” after Iran claimed that “two tankers carrying up to 4 million barrels of crude were struck by marine mines.” The bank notes that the incident has sharply heightened geopolitical risk premia in the energy complex, reinforcing concerns over the security of key Middle East supply routes.

The white metal also faces pressure from a stronger US dollar and rising bond yields. Oil prices remained firm amid escalating geopolitical conflicts in the Middle East and Eastern Europe, against signs of robust energy flows from the Persian Gulf.

In the Middle East, Iran has continued to assert control over the Strait of Hormuz, with maritime authorities reporting multiple attacks on commercial ships. Tensions further escalated as Saudi Arabia and Iran-backed Houthi militants in Yemen traded strikes, while Russia and Ukraine simultaneously resumed targeted attacks on energy infrastructure.

Meanwhile, the US Federal Reserve is widely expected to keep interest rates unchanged next week, with markets pricing in roughly a 93.5% probability of a rate hike in December.  Elsewhere, the European Central Bank is expected to implement at least one additional 25-basis-point rate increase this year to address persistent inflationary pressures. Bank of Japan Governor Kazuo Ueda said that underlying inflation was “quite close” to the central bank’s 2% target, signaling the possibility of further monetary tightening.

Analysts at Scotiabank observe that, despite the recent softening in the Dollar, “markets may be reluctant to chase the USD lower into the FOMC at the end of the month.” They add that the shift in rate expectations has eroded some of the currency’s yield advantage, noting that “reduced yield support may leave the USD prone to more weakness ahead,” even if investors remain cautious about extending bearish positions immediately before the upcoming Fed meeting.