Silver Slides as Fed Rate Hike Bets Surge

Silver tumbled around 4% to $64.5 an ounce on Thursday as traders increased their bets on a Federal Reserve rate hike next week following stronger-than-expected US producer price data. US PPI rose 0.4% in August, while annual producer inflation accelerated to 5.4%, surpassing market expectations of 5.3%, driven by a sharp rise in energy prices, alongside evidence of stronger cost pass-through across other sectors. The data came as oil prices rallied again amid escalating US-Iran strikes in the Middle East, reinforcing expectations for tighter monetary policy and prompting markets to price in a more than 70% chance of a Federal Reserve rate hike on September 16. Meanwhile, traders also increased their bets on further European Central Bank tightening after the central bank raised borrowing costs as expected and warned that inflation risks remained tilted to the upside.

Silver traded above $67 an ounce on Thursday, holding gains from the previous session as investors awaited key US inflation readings that could provide further insight into the Federal Reserve’s next policy move. The US producer price index report for August is due later today, followed by the consumer inflation report on Friday. Precious metals found support from a weaker dollar, as well as continued demand for their long-term hedging appeal despite near-term pressure from higher oil prices and bond yields. Oil prices climbed to multi-month highs as the US-Iran conflict intensified, stoking inflation concerns and strengthening expectations for near-term rate hikes. US Treasury yields also moved higher after the Treasury Department announced plans to buy back up to $6 billion in longer-term debt, disappointing some investors who had expected a more substantial increase.

Silver edged up to $66 an ounce on Wednesday, supported by a weaker US dollar as investors weighed renewed inflation risks from escalating Middle East tensions and awaited key US inflation data for clues on the Federal Reserve’s policy outlook. The dollar fell to a four-month low, with investors focused on producer-price data due Thursday and the consumer price index on Friday. The releases are expected to provide the final major clues ahead of the Fed’s September 16 policy meeting. Meanwhile, oil prices surged to their highest level in more than three months as US-Iran tensions intensified. Iran’s Revolutionary Guard said it had fired ballistic missiles at a US military-linked base in Jordan and attacked 10 ships on Wednesday, after Washington said it had destroyed five Iranian oil tankers. Markets are now pricing in around a 60% chance of a Fed rate hike at next week’s meeting.