Silver Extends Losses on Fed, Geopolitical Risks

Key Moments

XAG/USD trades near $57.00 per troy ounce, marking a second straight day of declines during Asian hours on Thursday.
Softer June US CPI at 3.5% and PPI at 5.5% eased immediate rate-hike fears and pushed September Fed hike odds down to about 44%.
Rising US-Iran tensions in the Strait of Hormuz are lifting oil prices and fueling concerns that higher Fed rates could persist.

Geopolitical Tensions Pressure Silver Despite Softer Inflation

Silver (XAG/USD) continues to lose ground for a second consecutive session, with prices hovering around $57.00 per troy ounce during Asian trading on Thursday. The non-yielding metal is coming under pressure as escalating tensions between the United States and Iran in the Strait of Hormuz drive oil prices higher and revive market worries over future inflation. These developments are seen as potentially extending the period of elevated interest rates from the Federal Reserve.

According to The Guardian, US Central Command (CENTCOM) launched another round of strikes aimed at maintaining access through the critical Strait of Hormuz. In a direct escalation, CENTCOM confirmed that US aircraft fired missiles into an oil tanker’s smokestack in the key shipping lane, disabling the vessel and adding to market uncertainty. Asked whether Iran faces a firm deadline before the US targets domestic infrastructure such as bridges, US President Donald Trump told reporters that he “does not like giving deadlines.”

Cooling US Inflation Data Temporarily Eases Rate-Hike Concerns

Against this backdrop, investors are reassessing the Federal Reserve’s policy trajectory following a batch of weaker-than-expected US inflation readings. On Tuesday, the US Consumer Price Index (CPI) dropped to 3.5% in June from a three-year high of 4.2% in May, undershooting the market forecast of 3.8%. The softer CPI print initially reduced near-term expectations that the Fed would move quickly to lift interest rates again.

The cooling trend was reinforced on Wednesday, when the US Producer Price Index (PPI) declined to 5.5% year-over-year in June, down from 6% in May and below the 6.2% anticipated by markets. On a monthly basis, PPI fell by 0.3%, reversing the 0.6% increase recorded in May and coming in stronger than forecasts that had pointed to no change.

Inflation Indicator	Period	Latest Reading	Previous	Market Expectation
Consumer Price Index (CPI), YoY	June	3.5%	4.2%	3.8%
Producer Price Index (PPI), YoY	June	5.5%	6%	6.2%
Producer Price Index (PPI), MoM	June	-0.3%	0.6%	0.0%

In response, markets dialed back expectations for a rate increase at the Federal Reserve’s September meeting. The implied probability of a hike slipped to around 44%, down from 50% the previous day. However, the recent breakdown of the interim peace agreement reached last month means that June’s inflation data does not yet incorporate the economic effects of the latest US-Iran military escalation, leaving a key source of uncertainty for precious metals and broader risk sentiment.

Background: Silver as an Investment Asset

Silver is a widely traded precious metal that has historically served as both a store of value and a medium of exchange. Although it attracts less attention than Gold, some investors use Silver to diversify portfolios, gain exposure to its intrinsic value, or seek protection during periods of elevated inflation. Market participants can hold physical Silver in coin or bar form, or access it through instruments such as Exchange Traded Funds that track its international market price.

Key Drivers of Silver Price Dynamics

A broad set of factors can influence Silver prices. Periods of geopolitical stress or fears of severe economic downturns can lift Silver due to its safe-haven characteristics, though typically to a lesser extent than Gold. As a yieldless asset, Silver generally benefits from lower interest rates. Because Silver is priced in US dollars (XAG/USD), the metal is also sensitive to movements in the US Dollar: a stronger dollar tends to restrain Silver, while a weaker dollar can support higher prices.

Other structural elements, such as investment demand, mining output – with Silver being considerably more abundant than Gold – and recycling activity, can also weigh on or support prices over time.

Industrial Demand and the Gold Link

Silver has extensive industrial applications, especially in electronics and solar energy, supported by its very high electrical conductivity, which surpasses both Copper and Gold. Strong industrial demand can push prices higher, while weaker activity tends to have the opposite effect. Economic conditions in the United States, China, and India can be particularly important: US and Chinese industrial sectors incorporate Silver in numerous processes, while Indian consumer demand for Silver jewelry is another relevant factor.

Silver often moves in tandem with Gold, reflecting their shared status as safe-haven assets. The Gold/Silver ratio – defined as the number of ounces of Silver required to equal the value of one ounce of Gold – is commonly monitored to gauge relative value between the two metals. Some investors view a high ratio as a potential signal that Silver is undervalued or Gold is overvalued, whereas a low ratio can be interpreted as Gold being undervalued in relation to Silver.