Silver Retreats From More Than Two-Month High as Fed Rate-Hike Expectations Return

(MENAFN- MENAFNEditorial) Silver is holding around $66.50 per ounce after climbing as high as $71.20, its highest level since mid-June. The metal has fallen approximately 6.6% from its intraday peak. From a broader perspective, however, silver still ended August with a gain of nearly 15%, marking its strongest month since the beginning of the year. The current move therefore appears more consistent with a correction following a rapid recovery than a clear sign that the trend has completely reversed.
The immediate catalyst behind silver’s loss of momentum was Federal Reserve Chair Kevin Warsh’s hawkish speech at Jackson Hole. Warsh said the Fed would still have “work to do” if policymakers were not sufficiently confident that inflation was returning to the 2% target clearly and quickly enough. His message was particularly significant given that inflation remains elevated, the labor market is relatively stable, and financial and credit conditions have yet to show that monetary policy is placing sufficient restraint on the economy.
The remarks prompted markets to quickly reassess their policy expectations. Barclays also shifted from forecasting unchanged interest rates for the remainder of the year to expecting two 25-basis-point increases, one in September and another in December. Nevertheless, Warsh provided no specific timeline and stressed that his remarks should not be interpreted as forward guidance, leaving the final decision dependent on upcoming economic data.
The initial market reaction was pronounced. Following Warsh’s speech, the two-year U.S. Treasury yield rose to approximately 4.36%, while the 10-year yield approached 4.73%. The DXY also gained 0.61% to nearly 99.7, marking its strongest session in more than two months. As silver generates no yield, the simultaneous rise in the dollar and Treasury yields increased the opportunity cost of holding the metal, triggering profit-taking after its previous strong advance.
However, pressure on silver was no longer driven entirely by the U.S. dollar at the beginning of the week. The DXY eased slightly to around 99.4, but silver still failed to stage a meaningful recovery. This suggests that the market continued to be influenced primarily by expectations that the Fed would maintain a hawkish stance, the ongoing rise in longer-term Treasury yields, and caution ahead of upcoming U.S. labor-market data.
Rising oil prices added further pressure. Escalating tensions between the United States and Iran helped push Brent above $90 per barrel and WTI close to $86, raising concerns that inflation could remain persistent. In this environment, geopolitical risk has not provided precious metals with the clear support it normally would. Safe-haven demand remains present, but its impact has been partly outweighed by the possibility that the Fed may need to raise interest rates further to contain price pressures.
Even so, silver retained most of its gains from August. Silver holdings in the iShares Silver Trust increased from approximately 486.5 million ounces on August 5 to 493.8 million ounces on August 28, suggesting that investment demand has begun to improve. The silver market is also forecast to record a deficit of approximately 46.3 million ounces in 2026, marking the sixth consecutive year in which demand exceeds supply. These factors cannot prevent short-term corrections, but they continue to provide a degree of support for silver’s medium-term outlook.
On the other hand, industrial silver demand is projected to decline by approximately 3% this year to 640 million ounces, its lowest level in four years. The decline is being driven primarily by the photovoltaic sector, where manufacturers continue to reduce the amount of silver used in each solar cell and gradually shift towards alternative materials. Manufacturing activity in China has also yet to recover convincingly, with the August PMI reaching only 49.8, despite improving from 49.2 in the previous month. The index remaining below the 50 threshold indicates that the industrial-demand outlook is still unstable, making silver more sensitive than gold to concerns over global growth.
Silver’s next move will likely depend significantly on this week’s U.S. labor-market data, including JOLTS, ADP and the nonfarm payrolls report. Markets currently expect the U.S. economy to have added approximately 55,000 jobs in August after losing 23,000 jobs in July. If the data show a recovery in hiring and continued wage growth, expectations of a September Fed rate hike could strengthen, maintaining pressure on silver. Conversely, a weak report—particularly if employment declines again—would weaken the case for further Fed tightening and create room for silver prices to stabilise.
Overall, silver’s retreat from a more than two-month high primarily reflects a shift in interest-rate expectations rather than a sudden deterioration in its underlying supply-and-demand fundamentals. The metal still ended August with a gain of nearly 15%, while investment flows and the persistent supply deficit continue to provide some support. However, its sharp reaction to Warsh’s remarks shows that silver remains highly sensitive to Treasury yields and changes in the monetary-policy outlook. The upcoming employment report will be an important driver, but the direction of Fed policy will still need to be assessed alongside the inflation data released ahead of the September meeting.

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