Silver prices (XAG/USD) extended their losses for a second consecutive day, trading around $63.30 per troy ounce during Asian hours on Friday, as market participants reacted to rising expectations of a Federal Reserve rate hike in September [1]. The CME FedWatch Tool indicated that markets are now pricing in a greater than 72% probability of a 25-basis-point rate increase next week, up from a 61% chance prior to the latest Producer Price Index (PPI) data release [1]. This shift in sentiment followed a hotter-than-expected PPI report from the US Bureau of Labor Statistics, which showed headline PPI rising 5.4% year-over-year in August, compared to July's 4.8% and exceeding analyst forecasts of 5.3% [1]. On a monthly basis, headline PPI increased by 0.4%, matching expectations, while core PPI rose by 0.2%, slightly below initial estimates [1].
Investors are also awaiting the upcoming US consumer price index report, which could further reinforce expectations for monetary tightening by the Fed [1]. In addition to monetary policy concerns, silver is facing headwinds from surging oil prices, driven by the escalating US-Iran conflict and heightened inflation fears [1]. Geopolitical risks have intensified after Yemen's Houthis seized the strategic Red Sea port city of Mokha from Saudi-backed forces, positioning the Iran-backed group just 75 km from the Bab al-Mandab Strait, a critical trade route between Asia and Europe [1].
TD Securities noted that 'industrial precious metals, such as silver and PGMs, are taking a beating as rising rates and weakness across base metals weigh heavy,' highlighting the vulnerability of cyclical segments of the precious metals market in the current macroeconomic environment [1].
CONCLUSION
Silver prices have come under significant pressure due to rising Fed rate hike expectations, stronger-than-anticipated US inflation data, and escalating geopolitical tensions in the Middle East. The market is bracing for further volatility as investors await the US consumer price index report, which could further influence monetary policy expectations.