Silver prices (XAG/USD) edged higher after two consecutive days of losses, trading around $63.90 per troy ounce during Asian hours on Friday [1]. The precious metal found support as inflation concerns eased, following a pullback in crude oil prices. This decline in energy markets was attributed to reports of the United States and Iran considering a phased agreement, mediated by Qatari officials at the UN General Assembly, which could potentially lift the US blockade on Iranian ports and reopen the Strait of Hormuz [1].
Despite the relief in energy costs, silver faces significant headwinds from a strengthening US Dollar and surging US Treasury yields. Investors are increasingly pricing in further monetary tightening by the Federal Reserve to contain broader price pressures. The CME FedWatch Tool shows market expectations for an October benchmark interest rate hike have climbed to nearly 67.5%, up from 55.4% a week ago and just 11% a month earlier [1]. This hawkish shift has triggered a sharp sell-off in US government bonds, with the 30-year US Treasury yield reaching 5.501%—its highest since June 2004—and the 10-year yield rising to 5.223%, a level not seen since June 2007 [1].
Economists at ING note that US borrowing costs have moved higher as markets respond to elevated energy prices and expectations of a 'higher-for-longer' Federal Reserve stance. They highlight that substantial government fiscal deficits and concerns about debt sustainability have pushed longer-dated US Treasury yields above 5%, increasing financing costs across the economy. While corporate bond spreads have tightened, ING stresses this has not prevented an overall rise in borrowing costs, leaving companies and households facing a more challenging funding environment [1].
Higher yields raise the opportunity cost of holding non-yielding assets like silver, capping its upside potential. The interplay between easing inflation concerns and rising US yields has created a mixed environment for silver, with short-term support from lower oil prices but longer-term pressure from monetary tightening and increased borrowing costs [1].
CONCLUSION
Silver prices remain steady near $63.90, supported by easing oil prices but pressured by surging US Treasury yields and expectations of further Fed tightening. The higher-for-longer interest rate outlook is raising borrowing costs and limiting silver's upside. Market participants are closely watching US monetary policy and energy developments for further direction.