Silver (XAG/USD) extended its correction on Tuesday, trading around $65.05 and marking a decline of 2.31% on the day. This retreat follows a seven-week high of $66.59 reached on Monday. The drop in silver prices is attributed to a sharp rise in oil prices and renewed concerns over US inflation, which have increased expectations for tighter monetary policy in the United States [1].
Oil prices have surged since the beginning of the week, with West Texas Intermediate (WTI) trading around $81.20, up more than 5% since the start of the week. The increase is linked to ongoing uncertainty over negotiations to reopen the Strait of Hormuz, as Iran has set conditions including war reparations and the lifting of sanctions. While Qatar reported that talks between Oman and Iran are at an advanced stage and have received positive feedback, the situation remains uncertain, supporting elevated energy prices and inflation concerns [1].
The rise in oil prices has contributed to higher US Treasury yields, diminishing the appeal of non-yielding assets like silver. Market expectations for further Federal Reserve tightening have increased, with the CME FedWatch tool indicating a 52% probability of a 25-basis-point rate hike at the September meeting, up from about 44% the previous day. Comments from Cleveland Fed President Beth Hammack reinforced these expectations, as she stated that current policy is not hurting the economy and suggested the Fed may need to raise rates more than once to bring inflation to target [1].
A stronger US Dollar, supported by these monetary policy expectations, has also weighed on silver, making it more expensive for investors using other currencies. Investors are now focused on the upcoming US Consumer Price Index (CPI) data due Wednesday, which could further influence expectations for Fed policy and the direction of silver prices. Stronger-than-expected inflation data could reinforce rate hike expectations and maintain pressure on silver, while easing price pressures could provide support for the metal [1].
CONCLUSION
Silver prices have fallen sharply amid rising oil prices and increased expectations for US interest rate hikes, driven by inflation concerns and hawkish Fed commentary. The market is now closely watching upcoming US CPI data, which could further impact silver's trajectory depending on the inflation outcome.