Silver (XAG/USD) fell sharply on Wednesday, trading around $64.70 and marking a 1.02% decline on the day, after hitting a two-month low at $63.37 [1]. The metal's attempt to rebound has been limited as investors reassess the outlook for US monetary policy in light of recent inflation data and geopolitical developments [1].
The latest US Consumer Price Index (CPI) data showed inflation accelerating to 4.2% year-over-year in May, the highest since April 2023 and in line with market expectations. Core inflation rose to 2.9% YoY, while monthly core inflation eased to 0.2% [1]. This resurgence in inflation, driven in part by a sharp rise in energy prices amid escalating conflict between the US and Iran, is complicating the Federal Reserve's efforts to bring inflation back toward its 2% target [1].
Prior to the Middle East escalation, markets were pricing in several Fed rate cuts for the year, but those expectations have largely faded. Investors are now considering the possibility of monetary tightening, with the CME FedWatch Tool indicating rising chances of a 25-basis-point rate hike later this year [1]. Support for the US Dollar from these expectations is adding further pressure on Silver, which does not generate income and becomes less attractive compared to yield-bearing assets when bond yields rise [1].
Geopolitical tensions remain high, with the US Central Command confirming new strikes against Iranian military facilities after the downing of a US Apache helicopter. Iran responded with attacks on several US bases and warned of further operations [1]. While such uncertainty typically boosts demand for precious metals, the current environment of rising rate hike expectations is exerting a stronger influence, keeping Silver vulnerable as long as markets price in a higher-for-longer US interest rate environment [1].
CONCLUSION
Silver prices have come under significant pressure, hitting a two-month low as rising US inflation and shifting Fed expectations toward possible rate hikes outweigh the usual safe-haven demand from geopolitical tensions. The market remains focused on monetary policy, with Silver likely to stay vulnerable if higher interest rates persist.