Silver price retreats as rising US yields, Hormuz tensions bolster US Dollar

Silver (XAG/USD) retreats on Tuesday and trades around $60.75 at the time of writing, down 0.38% on the day. The white metal comes under pressure from the sharp rise in US Treasury yields and a stronger US Dollar (USD), as persistent tensions surrounding the Strait of Hormuz keep Oil prices elevated and revive inflation concerns.

The benchmark 10-year US Treasury yield climbed to 5.28%, its highest level since 2007. The recent bond sell-off is largely driven by concerns that higher energy prices could keep inflationary pressures elevated in the United States (US) and force the Federal Reserve (Fed) to maintain a restrictive monetary policy stance.

On the geopolitical front, Iranian Foreign Minister Abbas Araghchi said Tehran held indirect talks with the United States through Qatari mediators in New York. Iran is now awaiting a formal response from Washington to its proposal regarding the reopening of the Strait of Hormuz.

However, US President Donald Trump denied reports that his administration offered Iran sanctions relief and access to frozen funds. Trump said Washington has offered Tehran “nothing” to end the conflict.

The two sides remain far apart on several key issues, while Tehran stressed that it does not intend to soften its conditions. The lack of significant progress therefore leaves the risk of prolonged disruptions around the Strait of Hormuz, which could keep energy prices elevated and continue to fuel inflation expectations.

Against this backdrop, markets expect further rate hikes from the Fed after the 25-basis-point (bps) increase delivered earlier in September. According to the CME FedWatch tool, traders price in around a 70% chance of another rate hike at the October meeting.

These expectations also support the US Dollar. The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, trades around 101.50, near its highest levels in two months. The combination of a stronger US Dollar and elevated Treasury yields creates an unfavorable environment for Silver, which offers no interest.

US economic data released on Tuesday nevertheless came in weaker than expected. The Conference Board Consumer Confidence Index fell to 81.9 in September, below the 89 expected, while the August reading was revised down to 88.6 from 89.4 initially reported. JOLTS Job Openings also declined to 7.079 million in August, below the 7.23 million forecast, while the previous reading was revised higher to 7.335 million.

Meanwhile, Fed Governor Michael Barr said on Tuesday that monetary policy needs to be “recalibrated” and that his base case is that further adjustments will likely be needed. Barr also noted that the labor market remains solid and expects economic growth to pick up after Gross Domestic Product (GDP) expanded by around 2% in the first half of the year.

Investors now turn their attention to the Personal Consumption Expenditures (PCE) Price Index, the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) and the Nonfarm Payrolls (NFP) report due later this week. These releases could provide fresh clues about the Fed’s interest rate path and, consequently, the outlook for US Treasury yields, the US Dollar and Silver.