Silver Slips as Oil Rally Fuels Fed Rate Hike Bets

Silver prices fell below $59 per ounce on Thursday, retreating from two-week highs as escalating tensions in the Middle East drove oil prices higher and reinforced expectations that the US Federal Reserve may raise interest rates later this year. The Iran-backed Houthis claimed responsibility for attacks on two Saudi oil tankers as part of a naval blockade, raising concerns over a new chokepoint for global crude supplies. At the same time, the US launched a 12th consecutive night of strikes on Iran, prompting further retaliation and heightening fears of prolonged disruptions to Gulf energy exports. The surge in oil prices has intensified inflation concerns, strengthening expectations that the Fed will keep monetary policy tighter for longer. Higher interest rates typically reduce the appeal of non-yielding assets such as silver. Money markets are currently pricing in about a 78% probability of a Fed rate hike in September.

Silver fell toward $59 per ounce on Thursday, easing from a nearly two-week high, as escalating Middle East tensions pushed oil prices higher. Iran-backed Houthi militants said they targeted two Saudi oil tankers in the Red Sea, increasing fears of wider disruptions to global energy flows, while President Trump warned of strikes on Iranian infrastructure if vessels passing through the Strait of Hormuz come under attack. The escalation pushed crude prices to six-week highs, keeping inflationary pressures elevated and fueling expectations that interest rates could stay higher for longer. Attention now turned to next week’s Federal Reserve meeting, with policymakers expected to leave rates unchanged. Still, markets continue to see the possibility of further tightening later this year, pricing in a 61% chance of a September rate hike. Elsewhere, India’s silver imports have slowed sharply as a new licensing regime disrupted shipments, driving local premiums to multi-month highs.

Silver climbed to $60 an ounce on Wednesday, its highest level since July 10, as safe-haven demand and technical buying gained momentum amid escalating Middle East tensions and ahead of next week's Federal Reserve meeting. Geopolitical concerns intensified after President Donald Trump warned of further strikes on Iran and pledged retaliation if Iran-backed Houthi rebels disrupt shipping through the Red Sea. Meanwhile, Secretary of State Marco Rubio said the US remains open to a deal with Iran but questioned whether Tehran is willing to accept terms acceptable to Washington. Despite the rally, silver remained below the record highs reached in January, as elevated oil prices have reinforced inflation concerns and expectations that the Federal Reserve may need to keep monetary policy restrictive. Markets currently price in two 25-basis-point rate hikes by March 2027, with about a 70% probability of the first increase coming as early as September.