Silver Holds Above $86

Silver traded near $68 per ounce on Thursday after falling about 3% in the previous session, as the US Federal Reserve signaled growing support for interest rate hikes this year. Half of FOMC members indicated that it may be necessary to raise rates this year, consistent with the expectations that core inflation will be higher than expected due to the impact of the war in the Middle East. Meanwhile, new Fed Chair Kevin Warsh declined to offer guidance on the next policy move but emphasized that inflation has remained above the central bank’s 2% target for several years and reaffirmed the Fed’s commitment to bringing price growth under control. On the geopolitical front, the US and Iran digitally signed their interim peace agreement, although it remains uncertain whether Iran has already begun steps to fully reopen the Strait of Hormuz.

Silver prices eased to below the $70 per ounce threshold on Wednesday after the Federal Reserve held rates unchanged and flagged the possibility of rate hikes this year. Half of the FOMC members projected it may be appropriate to raise interest rates this year they expect core inflation to remain higher and the labor market to remain at its currently strong level. The outlook pressured fixed income assets, increasing the opportunity cost of holding bullion instead of securities that carry coupons. On top of that, Fed Chairman Warsh announced multiple task forces that will investigate the need for changes to the monetary framework of the Federal Reserve, including a lower balance sheet, further pressuring bonds and precious metals. In the meantime, datacenter operators and AI infrastructure companies continued to raise cash to build more compute capacity, raising the demand outlook for industrial silver. The metal was also due to be used in Chinese expenditure for energy storage.

Silver traded around $70 per ounce on Wednesday and was up about 3% so far this week, as investors awaited the signing of a US-Iran peace agreement that is expected to restore oil flows through the Persian Gulf, helping ease concerns over inflation and interest rates. The two countries are scheduled to sign an interim deal in Switzerland on Friday, offering Tehran broad economic incentives, including the immediate resumption of its oil exports. Market participants also turned their attention to the Federal Reserve’s upcoming policy decision, where officials are widely expected to leave interest rates unchanged. The meeting will be the first chaired by Kevin Warsh, though he is not expected to submit a "dot" to the FOMC’s quarterly rate projections. Earlier this week, the Reserve Bank of Australia left its benchmark interest rate unchanged at 4.35%, while the Bank of Japan raised its policy rate by 25 basis points to 1%.