Higher US yields pressure silver price; Iran tensions limit losses

• Nearly 0.9% is wiped off Silver on Wednesday. Higher Treasury yields and a firmer US Dollar pressure precious metals.
• Inflation worries intensify as Oil prices climb, strengthening expectations that the Federal Reserve will tighten monetary policy further.
• Safe-haven demand linked to ongoing United States-Iran tensions offers Silver some support and contains its losses.

At around $57.50, Silver (XAG/USD) is down 0.89% on Wednesday at the time of writing. The metal is extending its decline as higher United States (US) Treasury yields and a modest rebound in the US Dollar (USD) make non-yielding assets less attractive. Rising Oil prices are also fuelling inflation worries and expectations of additional monetary tightening by the Federal Reserve (Fed).

Higher Treasury yields and mounting expectations of a persistently restrictive Fed policy stance are helping the US Dollar rebound from Tuesday's nearly three-week low. Because Silver pays no interest, rising borrowing costs typically put it under pressure by increasing the relative appeal of interest-bearing investments.

Approximately 1.6% is added to Brent Crude on Wednesday as uncertainty over Washington-Tehran negotiations stokes fears of extended disruption to global energy supplies. The rise in Oil prices adds to the negative backdrop for precious metals.

Renewed mediation has yet to produce a diplomatic resolution to the conflict. To help facilitate United States-Iran discussions, Pakistan's Army Chief Asim Munir arrived in Tehran on Tuesday. Talks reportedly faced major hurdles, however, after Tehran rejected the transfer of its enriched nuclear material abroad.

A peace agreement with Iran remains extremely difficult to achieve, US Secretary of State Marco Rubio acknowledged earlier this week. He also reaffirmed Washington's intention to sustain economic pressure on Tehran. Meanwhile, Iranian Foreign Minister Abbas Araghchi indicated that the Strait of Hormuz would stay closed until the United States agrees to Iran's conditions.

Concerns over global Oil supplies persist as disruption continues along this strategic shipping route. This supports energy prices and heightens the risk that inflation will remain elevated. In turn, expectations that the Fed could increase interest rates again in December are strengthening, adding to the pressure on Silver.

A near 90% probability of another December interest rate rise is currently priced in by financial markets, according to the CME FedWatch tool. Last week's stronger-than-expected US inflation data underpin these expectations, having heightened concerns that price pressures will persist.

Demand for safe-haven assets could nevertheless remain supported by geopolitical uncertainty in the Middle East, potentially containing Silver's losses. The metal is caught between opposing forces: geopolitical risk provides some support, while higher yields and expectations of tighter monetary policy depress prices.

The next focal points for investors are the Fed's monetary policy meeting on 28 October and the US Personal Consumption Expenditures (PCE) Price Index release on 29 October. The latter is the Fed's preferred inflation measure. Its findings could offer further signals on the path of US interest rates and shape Silver's price direction.