Silver Slumps as Inflation Fears and Rate Hike Expectations Intensify

Silver prices have dropped to around $63 an ounce as concerns over inflation, rising Treasury yields, and expectations of a Federal Reserve interest-rate increase intensify. The Consumer Price Index increased 0.4 percent from July and 3.4 percent from a year earlier in August, strengthening the case for a Fed rate hike.

A Reuters poll published Monday found that most economists now expect the Fed to raise rates at its September 15-16 meeting, with a 92 percent probability of a 25-basis-point increase. This represents a rapid change in expectations, as recently as September 9 a majority of economists expected no change in policy.

The rise in Treasury yields has created headwinds for silver and gold, as the metals themselves pay no interest. With government bonds offering increasingly attractive yields, investors face a higher opportunity cost for holding non-yielding precious metals. The yield on the benchmark 10-year U.S. Treasury briefly crossed 5 percent Monday for the first time since October 2023, and climbed further to around 5.03 percent on Tuesday.