Silver (XAG/USD) extended its losses for the second consecutive day, trading around $60.00 per troy ounce during Asian hours on Tuesday [1]. The decline in silver prices is attributed to rising oil prices, which have heightened inflation concerns and strengthened expectations for further interest rate hikes by the Federal Reserve (Fed) [1]. Higher interest rates typically weigh on precious metals like silver, as they increase the opportunity cost of holding non-yielding assets [1].
Geopolitical tensions are also influencing market sentiment. Investors are closely monitoring reports that the US may join Saudi Arabia in its campaign against Iran-backed Houthi militants in Yemen, while concerns persist following the violation of the recently announced Russia-Ukraine 'energy ceasefire' [1]. The US Dollar Index (DXY) is trading near 18-month highs ahead of key economic releases, further pressuring silver prices [1].
Market participants are awaiting Wednesday’s US Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI) to gauge the Fed's policy path [1]. According to the CME FedWatch Tool, there is roughly an 80% chance the Fed will keep rates unchanged this month, but an 88% probability of a rate hike in December [1]. Fed Bank of Cleveland President Beth Hammack emphasized a stronger-than-usual bias toward tighter policy, highlighting the need for higher rates to re-anchor inflation at 2% and expressing concern that inflation expectations may be becoming ingrained [1].
Analysts at Societe Generale note that a core inflation print of 2.5% (the market consensus) in Wednesday’s CPI is unlikely to shift market expectations, which currently anticipate no rate hike this month but a strong chance of one in December and another in Q1 [1].
CONCLUSION
Silver prices are under significant pressure due to rising oil prices, a strong US dollar, and expectations of further Fed rate hikes. Market sentiment remains cautious ahead of key US inflation data, with analysts and Fed officials signaling a continued bias toward tighter monetary policy. The outlook for silver remains bearish in the near term as these factors persist.