Silver Caught Between the Fed and the Hormuz Conflict

Silver prices weakened during Monday's trading (Sept 7), with the XAG/USD pair falling approximately 0.79% to the US$65.70 per troy ounce level. Pressure on the white metal mounted after a stronger-than-expected US labor report reignited expectations of a Federal Reserve interest rate hike and bolstered the US dollar.

Non-Farm Payrolls data revealed that the US economy added 162,000 jobs in August, far exceeding market forecasts of 56,000. The unemployment rate held steady at 4.1%, while year-on-year average hourly wage growth slowed slightly to 3.1% from the previous 3.2%. The data indicates that the US labor market remains robust enough to allow the Fed to maintain a tight monetary policy.

The prospect of higher US interest rates acts as a negative factor for silver, as the precious metal yields no interest or return. Simultaneously, expectations of rate hikes tend to support the US dollar, making silver—priced in the greenback—more expensive for investors using other currencies.

However, the Fed's policy trajectory remains contingent on inflation data trends. Fed Governor Christopher Waller previously stated he would support keeping interest rates unchanged if upcoming indicators show inflationary pressures continuing to ease. Consequently, investor attention has shifted to the Producer Price Index data on Thursday and the Consumer Price Index on Friday.

Geopolitical risks also remain a significant factor. Tensions between the United States and Iran in the Strait of Hormuz escalated after US forces attacked three Iranian oil tankers, while Iran claimed to have targeted several vessels in retaliation. The conflict has heightened concerns regarding maritime security and potential disruptions to energy supplies from the Middle East.

Rising energy prices resulting from the Hormuz tensions could intensify inflationary pressures, prompting the Fed to exercise greater caution regarding policy easing. Conversely, geopolitical escalation could also drive demand for safe-haven assets, thereby helping to limit silver's decline.

Newsmaker Analysis: Silver is currently caught in a tug-of-war between pressure from high interest rates and support from safe-haven demand. As long as expectations for Federal Reserve rate hikes remain strong and the dollar stays elevated, the scope for silver to strengthen is likely limited. However, rising geopolitical tensions could prevent a deeper decline. US PPI and CPI data this week will serve as key catalysts in determining silver's next direction. (arl)

Source: Newsmaker.id