Silver Gains on Soft US PCE Inflation Data

Silver rose above $61 an ounce on Thursday, rebounding from two-month lows as softer-than-expected US PCE inflation data reduced expectations for a Federal Reserve interest rate hike this month. The US PCE price index rose 0.3% in August, below the 0.4% forecast, while core PCE increased 0.2%, also coming in below expectations for a 0.3% gain. Markets now see roughly a 38% chance of a Federal Reserve rate hike in October, down from 51% before the PCE release. Oil prices also eased amid signs of improving energy flows from the Middle East, despite continued deadlock in US-Iran negotiations. Meanwhile, Treasury yields remained near multi-decade highs amid concerns over persistent energy-driven inflation, which could lead to tighter monetary policy. Traders continue to price in around a 97% probability of a Fed rate increase in December.

Silver fell toward $60 an ounce on Thursday, hitting its lowest levels in nearly two months as elevated oil prices and Treasury yields outweighed support from softer-than-expected US inflation data. The US PCE price index rose 0.3% in August, below the 0.4% forecast, while core PCE increased 0.2%, also falling short of expectations for a 0.3% gain. On an annual basis, headline PCE inflation came in at 3.4%, below the expected 3.7%. Markets now see roughly a 38% chance of a Federal Reserve rate hike in October, down from 51% before the PCE release. Meanwhile, oil prices remain elevated as the US and Iran make little progress in negotiations despite signs of recovering Middle East flows. Treasury yields also climbed to multi-decade highs amid concerns over persistent energy-driven inflation, which could prompt tighter monetary policy.

Silver remained below $61 an ounce at the end of September, down around 8% for the month and close to its lowest level since early August. Precious metals remained under pressure from elevated Treasury yields, while persistent energy-driven inflation and hawkish comments from Fed officials reinforced expectations of further policy tightening later this year. Still, softer-than-expected US inflation data and relatively dovish remarks from New York Fed President John Williams eased expectations of another rate hike as soon as next month. The PCE price index rose 0.3% in August, below expectations of 0.4%, while core PCE increased 0.2%, also below forecasts of 0.3%. Year-on-year, headline PCE inflation stood at 3.4%, below expectations of 3.7%. Williams said the Fed does not need to rush into another rate increase following this month’s hike. Markets are now pricing in a below 40% chance of a 25 bps rate hike in October, down sharply from 70% last Friday.