• Easing oil prices cushion Silver as US-Iran talks lower inflation fears, though easing supply concerns offset gains.
• A surging US Dollar and multi-year high Treasury yields continue to cap non-yielding Silver’s upside potential.
• Fed rate hike expectations jump to 67.5% for October, raising the opportunity cost of holding metal assets.

Silver price (XAG/USD) inches higher after two days of losses, trading around $63.90 per troy ounce during Asian hours on Friday. Non-yielding Silver is finding underlying support as inflation concerns ease following a pullback in crude oil prices. Energy markets turned lower amid reports that the United States and Iran are considering a phased agreement, mediated by Qatari officials on the sidelines of the UN General Assembly, that could lift the US blockade on Iranian ports and reopen the strategic Strait of Hormuz.

Despite this reprieve in energy costs, silver faces significant headwinds from a strengthening US Dollar and surging Treasury yields. Investors are increasingly pricing in further monetary tightening by the Federal Reserve to contain broader price pressures. According to the CME FedWatch Tool, market expectations for an October benchmark interest rate hike have climbed to nearly 67.5%, up sharply from 55.4% a week ago and just 11% a month earlier.

This hawkish shift in monetary expectations has triggered a sharp sell-off in US government bonds. The 30-year US Treasury yield surged to a high of 5.501%—its highest mark since June 2004—while the benchmark 10-year Treasury yield rose to 5.223%, touching a level not recorded since June 2007. Higher yields raise the opportunity cost of holding non-yielding assets like silver, capping its upside potential.

US yields climb as higher-for-longer Fed stance lifts borrowing costs

Economists at ING highlight that US borrowing costs have moved higher as markets respond to “elevated energy prices and a belief that the Federal Reserve is set to tighten policy and keep interest rates higher for longer.” They note that, against a backdrop of “substantial government fiscal deficits and anxiety about debt sustainability,” longer-dated US Treasury yields have “pushed above 5%,” reinforcing the upward pressure on financing costs across the economy. While “corporate bond spreads have tightened,” ING stresses this has not been sufficient “to prevent an overall rise in borrowing costs,” leaving companies and households facing a more challenging funding environment.