Silver price (XAG/USD) reversed its early gains and turned negative on Thursday, trading 0.7% lower at around $57.25 in European trade after reaching an intraday high of $58.65 [1]. The decline was driven by surging US Treasury Yields, with the 10-year yield up 1.8% and nearing its 18-month high of approximately 4.71% [1]. This rise in yields is attributed to market expectations that the Federal Reserve may need to hike interest rates in the near term due to persistent inflation concerns, diminishing the appeal of non-yielding assets like silver [1]. ANZ analyst Soni Kumari noted that higher yields, as a byproduct of rate expectations, are pressuring gold, and historically, silver reacts similarly to gold against bond yields [1].
Additionally, a recovery in the US Dollar Index (DXY) to near 101.00 after a weak Wednesday further weighed on silver prices, making it an unfavorable risk-reward bet for investors [1]. The US Dollar was strongest against the Swiss Franc, gaining 0.43%, and showed gains against other major currencies such as the Euro (+0.27%), British Pound (+0.22%), and Japanese Yen (+0.18%) [1].
The silver price initially opened higher following the Fed's monetary policy announcement on Wednesday, where the central bank decided to leave interest rates unchanged in the range of 3.50%-3.75% [1]. However, the Fed's statement and Chairman Kevin Warsh's press conference indicated heightened concern about inflation remaining well above the 2% target for an extended period [1]. According to the CME FedWatch tool, there is an almost 75% probability that the Fed will deliver at least one interest rate hike by the October meeting [1].
CONCLUSION
Silver prices have come under pressure due to rising US Treasury yields and a strengthening US Dollar, both driven by expectations of further Fed rate hikes amid persistent inflation concerns. The market is pricing in a high probability of at least one rate hike by October, suggesting continued volatility for non-yielding assets like silver. Investors should remain cautious as the Fed's hawkish stance may further impact precious metals in the near term.