Spot Silver retreated more than 2% on Monday, as US President Trump’s threat to block the Strait of Hormuz fueled concerns of a prolonged energy supply shock, sending oil prices back above $100 per barrel.
The US moved to impose a blockade on Iranian shipping after peace talks between the two nations over the weekend failed to make progress. The move, which was intended to put pressure on Tehran, left a frail ceasefire hanging in the balance.
Surging energy prices have raised inflation concerns and reinforced the case for tighter central bank monetary policy.
“With no US-Iran breakthrough over the weekend, the risk of a wider war is once again being priced in, threatening higher energy costs and a more aggressive Fed,” Zain Vawda, analyst at MarketPulse by OANDA, was quoted as saying by Reuters.
Traders are no longer expecting two rate cuts by the Federal Reserve this year. Instead, expectations of a potential rate hike have risen.
The minutes from the Federal Reserve’s March 17-18 meeting showed more policy makers felt that rate hikes could be required to counter inflation that still remained above the central bank’s 2% target.
Higher interest rates tend to increase the opportunity cost of holding Silver, which pays no interest.
Spot Silver was last down 2.40% on the day to trade at $74.01 per troy ounce.
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