Silver Holds Losses on Hawkish Fed Bets

Silver traded around $66.4 an ounce on Monday after losing more than 4% in the previous session, as hawkish remarks from Federal Reserve Chair Kevin Warsh revived expectations for an imminent interest rate hike. In his Jackson Hole address on Friday, Warsh warned that inflation is not easing significantly and reaffirmed the central bank’s commitment to bringing inflation back to its 2% target, while noting that financial conditions are not currently restrictive. Markets are now pricing in around a 57% chance of a 25-basis-point Fed rate hike in September, up sharply from roughly 40% a week earlier. Silver also remained pressured by rising oil prices after the US military targeted Iranian rocket launchers preparing to deploy mines into the Strait of Hormuz, marking the first such attack in more than a month. Still, the metal is on track to gain over 15% for the August.

Silver pared some of its gains to trade around $69 an ounce on Friday as investors digested hawkish-leaning remarks from Federal Reserve Chair Kevin Warsh. In his first major speech since taking the chair in May, Warsh warned that inflation has not meaningfully slowed and said policymakers need to see clearer evidence that underlying price pressures are easing, otherwise the central bank still has “work to do.” He reiterated the Fed’s commitment to returning inflation to its 2% target, which he described as a “firm and fixed” goal, and said financial conditions are not currently restrictive. His closely watched remarks offered greater clarity on his economic and policy views after criticism that his limited communication strategy had left markets with little guidance on the near-term outlook. Following the speech, markets raised the probability of a September rate hike to near 50%, according to CME FedWatch, weighing on silver.

Silver climbed above $70 an ounce on Friday, reaching over two-month highs as investors looked ahead to Federal Reserve Chair Kevin Warsh’s speech at the annual Jackson Hole symposium later in the day for clues about the outlook for US interest rates. Markets are currently pricing in around a 65% chance that the Fed will keep rates unchanged at its upcoming policy meeting in September. Still, a hotter-than-expected US inflation reading strengthened expectations for a Fed rate increase before year-end, with the probability of a hike by December remaining above 70%. Meanwhile, precious metals continued to benefit from the so-called debasement trade, as the US Treasury’s expanded debt buybacks heightened concerns over the risk of a US debt crisis and further dollar weakness.