Spot silver prices traded in a narrow range during the European session on Monday (October 26), near the year's low of $53 hit last Friday, as high oil prices exacerbated market concerns that the Federal Reserve would maintain a hawkish monetary policy stance for longer.

Oil Prices and Inflation: Middle East Risks Push Up Brent Crude, Renewing Inflation Concerns

Analysts at Commerzbank point out that escalating tensions in the Middle East are significantly pushing up international oil prices and reigniting market concerns about inflation ahead of the Federal Reserve's policy meeting on Thursday (Beijing time). Brent crude, a particularly volatile commodity, surged 6.2% last week, briefly approaching the $117 mark. Analysts emphasize that the Middle East remains the primary source of geopolitical risk, and instability in the region is increasingly reflected in the global inflation narrative. The continued rise in energy prices not only directly pushes up inflation readings but may also reinforce expectations of "higher and longer" interest rates, presenting policymakers with more complex trade-offs at the upcoming meeting. The market is closely watching whether oil price movements will further transmit to core inflation, thereby influencing the Fed's policy communication.

Federal Reserve forecasts: High probability of keeping interest rates unchanged; Warsh's statement will be key.

Financial markets are awaiting the Federal Reserve's monetary policy statement on Thursday for new clues about the future policy path. The market widely expects the Fed to keep the federal funds rate unchanged at 3.75% to 4.00%. Investors will focus on any changes in the wording of the monetary policy statement and Chairman Kevin Warsh's remarks at the post-meeting press conference. Warsh's public statements since returning to the Fed have shown limited interest in providing clear forward guidance; however, he has repeatedly emphasized that current inflationary pressures remain very high. This stance could make the market more reliant on its qualitative description of inflation risks, thus triggering fluctuations in interest rate expectations and the dollar exchange rate after the decision is made.

Institutional Views

UBS Global Wealth Management points out that silver will continue to face volatility due to central bank policy pressures in the short term, but is expected to rebound in the medium to long term. The bank predicts that spot silver will rise from the current price of approximately $55.90 to $70 in December 2026, reaching $75 by mid-2027, and further to $80 by September 2027. UBS emphasizes that silver, as a high-beta version of gold, will benefit from industrial demand driven by the expansion of AI infrastructure, as well as a persistent structural supply deficit. Despite silver-saving and substitution efforts in the solar energy sector, automotive electrification and overall physical shortages continue to provide support. Investors can buy on dips driven by interest rate expectations. HSBC believes that silver will continue to be supported in the first half of the year by tight physical markets, high leasing rates, and investment demand, but volatility and the risk of corrections will increase in the second half. The bank predicts an average silver price of approximately $68-75 in 2026, with a relatively lower year-end target; the average price is expected to decline further in 2027. HSBC points out that the supply deficit will narrow from approximately 230 million ounces in 2025 to 140 million ounces in 2026, with increased supply from mines and recycling coupled with slowing industrial demand being the main drags. While short-term shortages may persist, HSBC cautions that the gold-silver ratio may widen, meaning that even if gold prices rise, silver may face relative pressure. Investors should be wary of adjustments resulting from the supply-demand rebalancing in the second half of the year.

Summarize

Silver prices traded in a narrow range during Monday's European session, nearing the year's low of $53 reached last Friday, pressured by inflation concerns stemming from high oil prices. Brent crude rose 6.2% last week to just below $117 due to Middle East risks, with Commerzbank stating that the Middle East remains a major geopolitical risk and is being reflected in the inflation narrative. The market highly expects the Federal Reserve to keep interest rates unchanged at 3.75% to 4.00% on Thursday; the focus will be on the policy statement and Warsh's press conference. Warsh showed no interest in providing forward guidance but repeatedly emphasized that inflationary pressures remain very high; his remarks will determine the short-term direction of silver. (Spot silver daily chart, source: EasyTrade) At 15:16 Beijing time, spot silver was trading at $53.81 per ounce.