Silver dropped 1.33% to near $58.00 on Thursday as renewed US-Iran tensions lifted energy prices and pushed inflation expectations higher again. The prospect of tighter monetary policy weighs on the non-yielding metal, even as traders trim their bets on a Fed rate hike this month.
Silver (XAG/USD) traded 1.33% lower to near $58.00 during the European session on Thursday. The white metal came under selling pressure as elevated energy prices, driven by renewed aggression between the United States and Iran, de-anchored inflation expectations again.
Higher global price projections push central banks to keep monetary conditions tight, and that backdrop bodes poorly for non-yielding assets such as silver.
Middle East tensions lift energy prices
The Middle East conflict shows no sign of easing. US President Donald Trump has threatened to widen attacks on Iranian infrastructure next week unless Iran comes to the negotiating table. According to FXStreet, Trump said: "We're going to knock out all their bridges unless they get to the table" in a Fox News interview on Wednesday.
The renewed hostilities have kept energy prices elevated, feeding through into higher inflation projections that undercut the case for holding silver.
Traders scale back Fed hike bets
Traders have trimmed hawkish Federal Reserve bets after US inflation cooled at both retail and wholesale levels. Both the Consumer Price Index and Producer Price Index reports for June showed price pressures easing significantly.
The CME FedWatch tool now shows the odds of a Fed interest rate hike later this month at 10.2%, down from 31% a week ago. That cooling in rate-hike expectations, however, has not been enough to offset the drag from resurgent inflation fears.
Source: FXStreet
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