Silver Steadies Near $66 Ahead of US Inflation Data

Silver traded cautiously around $66 an ounce on Tuesday as investors weighed expectations of a Federal Reserve rate hike against a weaker dollar ahead of key US inflation data later this week. Rising oil prices also renewed concerns over inflation. Oil extended gains to multi-week highs amid escalating Middle East tensions after Yemen’s Iran-backed Houthis attacked energy facilities and cities in Saudi Arabia, a key US ally. Meanwhile, Friday’s stronger-than-expected jobs report pointed to a strengthening labor market, prompting traders to price in roughly a 60% chance of a Fed rate hike at the September meeting. While silver is traditionally seen as an inflation hedge, higher interest rates tend to reduce the appeal of the non-yielding asset. Investors now await producer price data on Thursday and consumer inflation figures on Friday for further clues on the Fed’s policy outlook.

Silver slipped below $66 an ounce on Tuesday, extending losses from the previous session amid expectations that major central banks will raise interest rates this month, while elevated oil prices continued to fuel inflation concerns. Markets are currently pricing in around a 60% probability that the US Federal Reserve will deliver a 25-basis-point rate hike next week following strong jobs data, with upcoming inflation figures expected to provide further clarity on the policy outlook. The European Central Bank and Bank of Japan are also expected to raise rates this month. Elsewhere, investors continued to monitor developments in the Middle East as renewed fighting between the US and Iran pushed oil prices higher. Meanwhile, precious metals could find support from investment and hedging demand, with central bank purchases and the so-called debasement trade remaining important market drivers.

Silver traded in a narrow range around $66 an ounce on Monday, with volumes subdued by a US holiday, after stronger-than-expected US jobs data drove bond yields higher and reinforced expectations that the Federal Reserve will raise interest rates this month. US nonfarm payrolls increased by 162,000 in August, well above expectations for a 56,000 gain, while the unemployment rate held steady at 4.1%. Traders now see nearly a 60% chance of a rate hike at the Fed’s policy meeting next week, up from around 50% before Friday’s jobs report, according to the CME FedWatch Tool. Investors are now awaiting PPI and CPI data later this week for further clues on the Fed’s policy outlook. Inflation concerns remain elevated after crude oil prices touched a near three-month high following an exchange of strikes on shipping between the US and Iran over the weekend. Iran’s Foreign Ministry said Tehran and Oman would soon announce details of a temporary safe route through the Strait of Hormuz.