Silver prices (XAG/USD) continued their decline, trading around $60.60 per troy ounce during Asian hours on Tuesday after registering losses of over 5% in the previous day [1]. The drop in silver is attributed to ongoing uncertainty surrounding US-Iran negotiations, which has kept oil prices elevated. Iranian officials expressed doubt about reaching an agreement before the US midterm elections in November, following US President Donald Trump’s rejection of Tehran’s latest proposal, which stalled diplomatic progress [1].
The persistent rise in energy costs has heightened expectations that the Federal Reserve will need to tighten monetary policy further to combat inflation. This has led to a surge in Treasury yields, which reached fresh multi-year highs, creating additional headwinds for non-yielding assets like silver [1]. Money markets are currently pricing in roughly a 70% probability of another Federal Reserve rate increase in October, following the central bank’s initial rate hike in three years earlier this month [1].
Strategists at Rabobank noted that positioning in US rates remains firmly tilted toward further tightening, with the OIS curve indicating that investors are still positioned for more than three hikes by the end of next year. This suggests that, despite the recent 25 basis point move from the Fed, market participants anticipate a relatively extended policy tightening cycle [1].
Market participants are now focused on upcoming US economic indicators for further signals regarding monetary policy. Key releases later this week include Wednesday’s US Personal Consumption Expenditures (PCE) inflation report and Friday’s Nonfarm Payrolls report [1].
CONCLUSION
Silver prices have come under significant pressure due to surging oil prices and rising Treasury yields, which have fueled expectations of further Federal Reserve rate hikes. Market sentiment remains cautious as investors await key US economic data for additional guidance on the Fed’s policy trajectory.