Higher US yields weigh on silver price, while Iran tensions cushion losses

Precious metals face pressure from higher Treasury yields and a firmer US Dollar, with Silver losing nearly 0.9% on Wednesday.
Expectations of additional monetary tightening by the Federal Reserve strengthen as rising Oil prices heighten inflation worries.
Safe-haven demand linked to ongoing tensions between the United States and Iran offers Silver some support, cushioning its decline.

Selling pressure persists in Silver (XAG/USD) on Wednesday, with the metal trading near $57.50 and losing 0.89% on the day at the time of writing. Non-yielding assets are losing appeal as United States (US) Treasury yields climb and the US Dollar (USD) stages a modest recovery. Adding to the pressure, rising Oil prices are intensifying inflation worries and bolstering expectations of further monetary tightening by the Federal Reserve (Fed).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Supported by climbing Treasury yields and firmer expectations of a continued restrictive policy stance at the Fed, the US Dollar is rebounding from Tuesday's nearly three-week low. Because Silver pays no interest, higher borrowing costs generally put pressure on the metal by making interest-bearing investments comparatively more appealing.

The advance in Oil is adding to negative sentiment towards precious metals. With uncertainty over Washington–Tehran negotiations fuelling fears of extended disruption to global energy supplies, Brent Crude gains approximately 1.6% on Wednesday.

Fresh mediation attempts have yet to deliver a diplomatic resolution to the conflict. On Tuesday, Pakistan's Army Chief Asim Munir reached Tehran to help facilitate talks between the United States and Iran. The negotiations reportedly ran into substantial hurdles, however, following Tehran's refusal to send its enriched nuclear material abroad.

While reaffirming Washington's plan to keep economic pressure on Tehran, US Secretary of State Marco Rubio conceded earlier this week that securing a peace agreement with Iran remains extremely difficult. Meanwhile, Iranian Foreign Minister Abbas Araghchi signalled that the Strait of Hormuz would stay closed until the United States agrees to Iran's conditions.

Energy prices are finding support from fears over global Oil supplies as disruption continues along this strategic shipping route. The resulting risk of prolonged inflation is strengthening expectations that the Fed could increase interest rates again in December, adding to the challenges facing Silver.

Financial markets are currently pricing in a near 90% probability of a further interest rate increase in December, according to the CME FedWatch tool. Behind those expectations are last week's stronger-than-expected US inflation readings, which deepened concerns that price pressures remain persistent.

Even so, demand for safe-haven assets could remain supported by uncertainty in the Middle East, helping to contain Silver's losses. These competing forces leave the metal caught between support from geopolitical risks and pressure from rising yields and expectations of tighter monetary policy.

Next on investors' agenda is the Fed's monetary policy meeting on 28 October, ahead of the US Personal Consumption Expenditures (PCE) Price Index release on 29 October. The report, which is the Fed's preferred inflation measure, could offer fresh clues on the path of US interest rates and help shape Silver's price direction.

Silver: Common Questions Answered

What attracts investors to Silver?

Widely traded by investors, Silver has long served both as a store of value and as a medium of exchange. Gold remains more popular, but traders may choose Silver for its intrinsic value, to diversify their portfolios or as a possible hedge against high inflation. Exposure can take the form of physical coins and bars or investment vehicles such as Exchange Traded Funds that follow Silver's price in international markets.

What drives changes in Silver prices?

A broad set of influences can move Silver prices. Its safe-haven appeal can push prices higher during geopolitical unrest or concerns about a severe recession, though this effect is generally weaker than for Gold. Lower interest rates also tend to benefit Silver because it offers no yield. Since the metal is quoted in US dollars (XAG/USD), movements in the US Dollar (USD) matter too: a firmer Dollar generally restrains Silver prices, while a softer Dollar is likely to lift them. Investment demand, recycling rates and mine supply can also influence prices, with Silver far more abundant than Gold.

Why does industrial demand matter for Silver prices?

With electrical conductivity among the highest of any metal, exceeding that of Copper and Gold, Silver has extensive industrial applications, notably in electronics and solar energy. A sharp rise in demand can lift prices, whereas weaker demand tends to bring them down. Developments in the US, Chinese and Indian economies can also drive price fluctuations. Large industrial sectors in the US and, especially, China use Silver across a range of processes. In India, consumer demand for Silver jewellery is another important influence on prices.

How closely does Silver follow Gold prices?

Gold and Silver share safe-haven characteristics, so gains in Gold prices are typically accompanied by gains in Silver. More broadly, Silver tends to track Gold's price movements. To assess the metals' relative valuations, investors may use the Gold/Silver ratio, which measures how many ounces of Silver equal the value of one ounce of Gold. A high ratio may be interpreted by some investors as a sign that Silver is undervalued or that Gold is overvalued. A low ratio, by contrast, could indicate that Gold is undervalued compared with Silver.