Silver Retreats as Fed Hike Jitters Mount on Oil Rally

Key Moments

Market Overview

Silver prices (XAG/USD) are giving back ground after two straight sessions of gains, with the metal changing hands near $66.00 per troy ounce during Asian trading on Tuesday. The non-yielding metal has faced renewed selling pressure as surging crude oil prices stoke inflation concerns and lift expectations for additional interest rate increases.

Investors are increasingly wary as geopolitical uncertainty surrounding a potential agreement between the United States and Iran to halt the conflict and reopen the strategically vital Strait of Hormuz keeps risk sentiment fragile. The tension has helped drive a strong move higher in crude oil, which has also contributed to an upswing in U.S. Treasury yields.

Fed Expectations and Inflation Data in Focus

Concerns are building that the Federal Reserve may opt to raise rates sooner than previously anticipated, despite signs of a slowing labor market. Market participants are now firmly focused on key inflation releases due this week to better assess the Fed’s upcoming policy decisions.

According to the CME FedWatch Tool, market-based probabilities for a 25-basis-point Federal Reserve rate increase in September have risen above 51%, compared with 44.4% just one day earlier. The shift reflects mounting expectations that policymakers may need to respond more aggressively to persistent price pressures, a backdrop that typically weighs on yield-sensitive assets such as silver.

Industrial Demand Provides a Counterbalance

Even as macro headwinds pressure prices in the near term, the broader picture for silver is not entirely negative. Strong industrial demand remains a key supportive factor and could help establish a floor under the market. The metal continues to benefit from large-scale global investment in areas such as solar panel manufacturing and upgrades to electrical infrastructure.

Recent trade figures highlight this underlying strength: Chinese imports of silver-bearing ores recorded a sharp increase, climbing 62.5% year-over-year in June to 219,000 tonnes. This surge underscores the robust physical consumption backdrop for the white metal, particularly in industrial applications.

Interaction with Gold and Recent Price Action

Silver has retreated after touching a seven-week high on Monday, a move that coincided with a rally in gold driven by improved investment flows into precious metals. The broader complex has paused following those gains.

According to TD Securities, “precious metals hit pause,” with the yellow metal “holding gains after the weaker jobs numbers further questioned the probability of coming Fed hikes.” The bank’s commodity strategists note that the softer US labor data has eased perceived policy tightening risks, helping to underpin gold prices even as broader momentum in the complex stalls.

A correction to the story clarifies that, as of the latest update, XAG/USD is holding losses around $66.00 rather than “slipping to the levels,” with the adjustment made on August 11 at 02.50 GMT.