Silver prices (XAG/USD) continued their decline for a second consecutive day, trading around $75.10 per troy ounce during early European hours on Wednesday [1]. The downward pressure on silver is attributed to renewed uncertainty over the status of the Strait of Hormuz, which has reignited fears of an energy-driven inflation shock [1]. This has led to increased expectations that central banks, including the Federal Reserve, will maintain a hawkish stance and keep interest rates higher for longer [1].
The optimism for a US-Iran peace deal faded rapidly after US military 'self-defense' airstrikes in southern Iran. In retaliation, Iran’s Revolutionary Guard claimed to have targeted an American F-35 fighter jet and several drones for allegedly violating Iranian airspace. Iran's foreign ministry condemned the strikes in the southern Hormozgan province, calling them a 'gross violation' of a fragile, seven-week-old ceasefire. State media reported heavy explosions in the region early Tuesday morning, further escalating tensions [1].
Market sentiment was negatively impacted by the US Consumer Confidence Index, which edged down 0.7 points to 93.1 in May from an upwardly revised 93.8 in April. This decline was largely attributed to rising inflation anxieties linked to the ongoing conflict in Iran. While households expressed near-term pessimism about the current labor market, there remains optimism that conditions will improve by year-end [1].
Looking ahead, traders are closely watching upcoming commentary from Fed Vice Chair Philip Jefferson and Governor Lisa Cook for insights on how persistent inflation might influence interest rates. Additionally, the market is awaiting Thursday's release of the April US Personal Consumption Expenditures (PCE) data for further policy direction [1].
CONCLUSION
Silver prices have come under pressure due to escalating US-Iran tensions and renewed inflation fears, leading to expectations of prolonged higher interest rates. Market participants are now focused on upcoming Fed commentary and key inflation data for further direction.