Silver Dips as Oil Surge Shifts Focus to Inflation Risks

The price of silver (XAG/USD) fell after opening with a bullish gap on Wednesday, hovering around $60.90 per troy ounce during Asian trading hours. The decline came despite silver initially staying in positive territory, as rising oil prices due to Middle East supply risks shifted focus back to inflation and rate-hike expectations. Crude oil markets surged amid escalating threats to regional energy flows, including attacks on tankers in the Strait of Hormuz and a Houthi missile targeting Saudi Arabia. A developing storm in the Gulf of Mexico also raised concerns about potential production disruptions in major U.S. energy hubs.

Despite these challenges, silver found some support as expectations for further Federal Reserve tightening eased following last week's softer U.S. labor market data. The CME FedWatch tool indicates a roughly 20% probability of a rate hike at the Fed's upcoming October meeting. However, U.S. Treasury yields remained near multi-decade highs, driven by persistent inflation risks, growing fiscal deficits, and heavy debt issuance related to expanding AI investments.

TD Securities noted that trend-following funds are only modestly engaged in silver, with CTAs holding a small net short position around -2% of maximum historical size. The firm identified a key downside trigger level at $60.71, suggesting how systematic flows could evolve in silver over the coming year.