Silver Surges on Falling Rate Expectations, Not Inflation Fears

Silver's price has risen by over 11% in just ten days, but it's not because inflation is expected to soar. Instead, a weak jobs report and cooler inflation rates have reduced the likelihood of a rate hike from the Federal Reserve.

The real yield on government bonds, which adjusts for inflation, was set at 2.438% at an auction in late July, the highest level since October 2008. This means that investors are demanding a much better return to lend to the government, driven by war risk and borrowing from Washington.

The same auction showed that investors expect inflation of only 2.26% over the coming decade, below what the last ten years actually delivered. This suggests that the problem is not with inflation expectations, but with real yields.

Silver's price has outpaced gold during this move, which is consistent with falling rate expectations doing the work. The metal did not rally because of hot inflation fears, but rather because cooler inflation reduced the likelihood of a rate hike.