Silver Surges as Middle East Ceasefire Hopes Weigh on Dollar, Oil

Silver climbed above $74.5 per ounce on Thursday as hopes for a Middle East resolution weakened the dollar and oil prices, easing inflation and interest rate hike concerns. Israel and Lebanon’s ceasefire agreement to end hostilities raised hopes for a broader de-escalation in the US-Israeli conflict with Iran. Additionally, the Republican-led US House of Representatives passed a resolution to block President Donald Trump from continuing military action against Iran. However, uncertainty about the war’s end persists, and regional tensions remain elevated. Since the conflict began in late February, silver has lost about 20% as surging oil prices fueled inflation fears and increased the likelihood of higher interest rates.

Silver traded near $73 an ounce on Thursday after losing over 3% in the previous session, weighed down by growing expectations that central banks may need to raise interest rates to counter an energy-driven inflation shock stemming from the Middle East conflict. Hopes for a peace agreement also faded after the US and Iran exchanged strikes, with Bahrain and Kuwait caught in the crossfire during the most serious escalation since the ceasefire took effect in early April. The prolonged conflict and the near-shutdown of the crucial Strait of Hormuz have kept energy prices elevated, fueling inflation concerns and reinforcing expectations of tighter monetary policy. In the US, Cleveland Fed President Beth Hammack said the Fed could be forced to raise rates soon if inflation pressures continue to intensify. Investors are now focused on Friday’s nonfarm payrolls report for further clues on the Fed’s policy outlook.

Silver prices fell about 1% to around $74 per ounce on Wednesday, approaching a two-week low, as expectations grew that central banks may need to adopt a more hawkish stance and keep interest rates higher for longer. Sentiment was also weighed by continued uncertainty over a US-Iran agreement to end the conflict. At the same time, oil prices extended their gains, further stoking concerns about inflationary pressures. In the US, recent labor market data point to an acceleration in employment growth, consistent with earlier ADP and JOLTS reports. As a result, markets now ECB is expected to raise borrowing costs next week, with traders also pricing in another 25-basis-point hike in September.