Silver extends losses as rising oil prices offset cooling US inflation data

Silver prices extended losses for a second straight session on Thursday.

Silver (XAG/USD) traded around $57.00 per troy ounce during Asian trading hours.

The non-yielding precious metal remained under pressure as renewed tensions between the United States and Iran pushed oil prices higher, reviving concerns that inflation could remain elevated.

The prospect of persistent inflation has increased expectations that the Federal Reserve could maintain higher interest rates for longer, reducing the appeal of non-yielding assets such as silver.

Gold slips despite safe-haven demand

Gold also traded lower on Thursday despite heightened geopolitical risks.

Spot gold fell toward $4,035 an ounce during Asian trading, while August gold futures also declined.

Earlier in the session, the precious metal briefly held above $4,050, but the recovery lost momentum as Brent crude remained above $85 per barrel.

The price action reflects competing forces influencing the precious metals market.

On one hand, escalating geopolitical tensions have increased demand for traditional safe-haven assets.

On the other hand, higher oil prices have strengthened inflation expectations, raising the possibility that the Federal Reserve may keep interest rates elevated for longer.

As a result, both gold and silver continue to face pressure despite softer inflation data, with investors balancing defensive demand against the higher opportunity cost of holding non-yielding assets in a prolonged high-interest-rate environment.

Cooling US inflation eases immediate rate concerns

Market participants also continued to evaluate the Federal Reserve's policy outlook following softer-than-expected US inflation data released earlier in the week.

Data released on Tuesday showed that the US Consumer Price Index (CPI) slowed to 3.5% in June, down from 4.2% in May, the highest level in three years.

The reading also came in below the market expectation of 3.8%, easing immediate concerns that the Federal Reserve would need to raise interest rates in the near term.

The cooling inflation trend was further supported by Producer Price Index (PPI) data released on Wednesday.

The annual PPI eased to 5.5% in June from 6.0% in May, while also coming in below the market expectation of 6.2%.

Every month, producer prices declined 0.3%, reversing the 0.6% increase recorded in May.

The reading also outperformed analysts' expectations, which had pointed to no monthly change.

Markets reduce September rate hike expectations

Following the softer inflation readings, markets lowered expectations for another Federal Reserve rate increase in September.

The implied probability of a September rate hike declined to around 44%, compared with 50% a day earlier.

The weaker inflation data initially supported sentiment by reducing expectations of tighter monetary policy.

However, investors remain cautious as geopolitical developments continue to reshape the inflation outlook.