Silver under pressure from US yields, firm dollar

Silver fell sharply on Monday, losing 4.53% on the day to trade around $61.40, with XAGUSD facing heavy selling pressure as elevated US Treasury yields and growing expectations of further interest rate hikes weigh on non-yielding assets.

Higher crude oil prices remain at the centre of investors’ concerns. Persistent disruptions to worldwide energy supplies are fueling risks of more persistent inflation in the US, potentially forcing the Federal Reserve to maintain a restrictive monetary policy stance for longer than previously expected.

Money markets now price in around a 68% chance of another interest rate hike at the Fed’s October meeting, according to the CME FedWatch tool. These expectations follow the US central bank’s rate increase in September and recent hawkish comments from several Fed officials.

US Treasury yields benefit directly from this reassessment of the monetary policy outlook. The benchmark 10-year US Treasury yield trades close to its highest level in nearly two decades, increasing the opportunity cost of holding precious metals that offer no interest. This dynamic contributed to silver’s sharp decline on Monday.

Geopolitical tensions and their implications for energy supplies also keep oil prices elevated. At the same time, this environment provides support to the safe-haven US dollar, adding further downward pressure on XAGUSD.

Attention now turns to upcoming economic data, which will allow investors to refine their expectations for the interest rate outlook.

US employment figures due on Friday will be particularly closely watched, while inflation and activity indicators released this week could also influence expectations surrounding the Fed’s next policy decisions.