Silver price weakens on higher US yields, with Iran tensions limiting downside
- Silver declines nearly 0.9% on Wednesday as rising Treasury yields and a stronger US Dollar weigh on precious metals.
- Higher Oil prices fuel inflation concerns and reinforce expectations of further monetary tightening by the Federal Reserve.
- Persistent tensions between the United States and Iran provide some safe-haven support, limiting the downside for Silver.
Silver (XAG/USD) extends its decline on Wednesday, trading around $57.50, down 0.89% on the day at the time of writing. The precious metal remains under pressure as rising United States (US) Treasury yields and a modest recovery in the US Dollar (USD) reduce the appeal of non-yielding assets. Meanwhile, higher Oil prices reinforce inflation concerns and expectations of further monetary tightening by the Federal Reserve (Fed).
The US Dollar is recovering from a nearly three-week low reached on Tuesday, supported by higher Treasury yields and growing expectations that the Fed will maintain a restrictive monetary policy stance. Higher borrowing costs tend to weigh on Silver, as the metal does not generate interest, making interest-bearing assets relatively more attractive to investors.
Oil prices are also contributing to the bearish environment for precious metals. Brent Crude rises by approximately 1.6% on Wednesday as uncertainty surrounding negotiations between Washington and Tehran raises concerns about prolonged disruptions to global energy supplies.
Diplomatic efforts to resolve the conflict remain unsuccessful despite renewed attempts at mediation. Pakistan's Army Chief Asim Munir arrived in Tehran on Tuesday to facilitate discussions between the United States and Iran. However, negotiations reportedly encountered significant obstacles after Tehran refused to transfer its enriched nuclear material abroad.
US Secretary of State Marco Rubio acknowledged earlier this week that reaching a peace agreement with Iran remains extremely difficult, while reiterating Washington's intention to maintain economic pressure on Tehran. Iranian Foreign Minister Abbas Araghchi also indicated that the Strait of Hormuz would remain closed until the United States accepts Iran's conditions.
The continued disruption of this strategic shipping route raises concerns about global Oil supplies, supporting energy prices and increasing the risk of persistent inflation. These developments reinforce expectations that the Fed could raise interest rates again in December, creating additional headwinds for Silver.
According to the CME FedWatch tool, financial markets currently assign a near 90% chance to another interest rate increase in December. These expectations follow stronger-than-anticipated US inflation figures released last week, which have reinforced concerns about the persistence of price pressures.
Nevertheless, geopolitical uncertainty in the Middle East could limit Silver's losses by maintaining demand for safe-haven assets. The metal therefore faces conflicting influences, with geopolitical risks offering some support while higher yields and tighter monetary policy expectations weigh on prices.
Looking ahead, investors will focus on the Fed's monetary policy meeting scheduled for October 28, followed by the release of the US Personal Consumption Expenditures (PCE) Price Index on October 29. As the Fed's preferred inflation gauge, the report could provide further indications about the trajectory of US interest rates and influence the direction of Silver prices.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
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