Silver (XAG/USD) experienced a significant rally on Friday, climbing 5.40% to trade around $82.60, driven by a combination of a weakening US Dollar and revived expectations for Federal Reserve interest rate cuts later in the year [1]. The surge in silver prices coincided with a notable de-escalation of geopolitical tensions in the Middle East, as Iran’s Foreign Minister Abbas Araghchi announced the complete reopening of the Strait of Hormuz for commercial vessels during a ceasefire period. This development marked a substantial reduction in risk for one of the world's most critical shipping routes [1].
The easing of tensions led to a sharp decline in oil prices, with West Texas Intermediate (WTI) falling to approximately $80 per barrel, representing one of its steepest daily drops in recent weeks. The restoration of stable crude shipments through the Gulf is expected to remove part of the geopolitical risk premium from energy prices, which in turn is alleviating immediate inflation concerns [1].
As energy prices fell, investors reassessed the outlook for US monetary policy. Lower oil prices are reducing inflationary pressures, increasing the likelihood of Federal Reserve rate cuts. According to the CME Fedwatch tool, markets are now pricing a 38.2% chance of a 25-basis-point rate cut by year-end, up from 25.9% the previous day [1]. Lower interest rates typically benefit non-yielding assets like silver by reducing the opportunity cost of holding them.
The US Dollar Index (DXY) also traded near multi-week lows around 97.80, further supporting silver’s upward momentum by making it more attractive to international investors [1]. Despite the improvement in global risk sentiment, the combination of a softer dollar and renewed expectations for monetary easing continues to provide strong support for precious metals. Investors are now watching for further developments in US-Iran negotiations and upcoming comments from Federal Reserve officials ahead of the next FOMC meeting [1].
CONCLUSION
Silver’s sharp rally was fueled by a weaker US Dollar, easing Middle East tensions, and increased expectations for Fed rate cuts. The market responded with a strong move into precious metals as inflation concerns subsided and the opportunity cost of holding non-yielding assets fell. Investors remain attentive to further geopolitical and monetary policy developments.