• Silver declines as markets price in a 72% probability of a 25-basis-point Federal Reserve rate hike next week.
• August US Producer Price Index rose 5.4% year-over-year, outpacing analyst expectations and fueling inflation worries.
• Escalating US-Iran conflict and Houthi advances near the Red Sea push oil prices higher, pressuring Silver.

Silver price (XAG/USD) extends its losses for the second successive day, trading around $63.30 per troy ounce during Asian hours on Friday. Silver prices are declining as expectations grow for a Federal Reserve (Fed) rate hike in September.

According to the CME FedWatch Tool, markets are currently pricing in a greater than 72% probability of a 25-basis-point rate increase next week, a notable jump from the 61% chance recorded prior to the recent Producer Price Index (PPI) data release. Investors are also closely bracing for the upcoming United States (US) consumer price index report, which could further solidify these monetary tightening expectations.

This downward pressure comes on the heels of a hotter-than-expected PPI report released by the US Bureau of Labor Statistics on Thursday. The report showed that the headline PPI rose 5.4% year-over-year in August, climbing from July’s 4.8% increase and outpacing analyst forecasts of 5.3%. On a monthly basis, headline PPI matched expectations with a 0.4% increase, while core PPI rose by 0.2%, coming in slightly softer than initial estimates.

Beyond monetary policy concerns, Silver is also contending with headwinds from surging oil prices driven by the escalating US-Iran conflict, which has heightened broader inflation fears. Compounding these geopolitical tensions, BBC sources report that Yemen’s Houthis have seized the strategic Red Sea port city of Mokha from Saudi-backed pro-government forces. This tactical capture places the Iran-backed group just 75 km (46 miles) away from the Bab al-Mandab Strait, a critical southern gateway connecting essential trade routes between Asia and Europe.

Industrial precious metals slump as rates rise and base metals falter

According to TD Securities, “industrial precious metals, such as silver and PGMs, are taking a beating as rising rates and weakness across base metals weigh heavy,” underscoring how the more cyclical segments of the precious metals complex are bearing the brunt of the current macro backdrop.