Silver Rebounds, Middle East & Fed Tug-of-War
Silver prices rebounded on Monday (June 8th) after experiencing sharp pressure over the weekend. XAG/USD traded around US$68.57 per ounce, rebounding from a more than two-month low reached on Friday.
This recovery occurred as the market digested the latest developments in the Middle East. While there were signs of a halt to the attacks on one hand, the conflict in Lebanon remains a source of new risks, so investors are still holding back from aggressively adding to their positions in riskier assets. The headline-driven environment makes silver volatile as geopolitical volatility also impacts oil prices and inflation expectations.
On the macro front, the most restraining factor for silver's rally was the repricing of US interest rates following strong employment data. The latest jobs report underscored the resilience of the US economy, making the market increasingly confident that the Fed has room to maintain a tight policy for longer—even leaving the option of a hike if inflationary pressures persist.
Correspondingly, the interest rate market is increasing the probability of a tightening scenario. Reuters reported that the market (via FedWatch) views the chances of a rate hike by the end of the year as increasing, amid a combination of a strong labor market and the risk of energy inflation. A high interest rate environment typically weighs on non-yielding precious metals, including silver.
However, silver's rebound is also supported by technical factors after last week's sharp sell-off. Investors tend to "buy the dip" when prices have fallen too quickly, but the recovery remains fragile as long as the dollar and yields remain high.
The next focus is on US inflation data this week—particularly the CPI (Wednesday) and PPI (Thursday)—which will determine whether the market re-ups tightening bets or gives precious metals some breathing room. If inflation flares up again, silver risks further pressure; if inflation softens, the recovery could continue, although it remains sensitive to Middle East headlines. (arl)
Source: Newsmaker.id
