Silver Prices Plummet Amid Fed Rate Hike Fears and Easing Tensions

Silver prices fell nearly 2% on the Multi Commodity Exchange (MCX) on Tuesday, weighed down by fears of a potential interest rate hike by the US Federal Reserve. The most active contract on MCX traded at ₹2,18,000 per kg, down ₹3,173 or 1.43% from the previous close of ₹2,21,173.

Markets are pricing in more than a one-in-three chance of a rate hike at Wednesday's meeting, which is an unusually high level of uncertainty this close to a decision. Citadel Securities expects the central bank to raise rates to reinforce Chairman Kevin Warsh's credibility on inflation, after he repeatedly pledged to restore price stability.

Higher interest rates tend to work against silver, as they lift real yields and make it less attractive. Even the possibility of a hike is enough to cool buying in the metal. The second drag on silver prices came from easing tensions in West Asia, which stripped out part of the safe-haven premium that had been supporting the metal.