Silver tumbles as stronger dollar and Fed uncertainty hit metals

Precious metals came under pressure in Asian trade on Wednesday as a stronger US dollar and rising expectations of higher US interest rates pushed investors away from bullion and other non-yielding assets.

Silver led the decline, falling to a fresh low not seen in more than six months, while gold also extended its losses.

Platinum and palladium moved lower as well, signalling broad-based weakness across the precious metals complex rather than pressure confined to a single metal.

Silver fell to an intraday low of $60.74 during the Asian session, with XAG/USD trading around $61.00 at the time of writing.

Gold also weakened, with spot gold down 1% at $4,067.51 an ounce in early trade after touching its lowest level since June 11.

August gold futures dropped 1.6% to $4,083.90.

Fed rate outlook shifts sharply

The move lower in precious metals came as investors reassessed the outlook for US monetary policy.

According to the CME FedWatch tool, the probability of the Federal Reserve raising interest rates this year has climbed to nearly 86%.

That marks a sharp reversal from earlier expectations for two rate cuts before the onset of the Middle East war, which the draft says contributed to stronger inflationary pressures.

Higher interest rates tend to weigh on precious metals because they do not offer yield.

As a result, rising borrowing costs and firmer Treasury yield expectations can reduce the appeal of assets such as gold and silver.

The latest selloff suggests that the market’s focus has shifted away from geopolitical uncertainty alone and towards the implications of a more hawkish Fed path.

While gold continued to find some support from uncertainty around the US-Iran peace process, that support was not enough to offset the impact of a stronger dollar and the repricing of policy risk.

Dollar strength adds to pressure

The rise in the US dollar added another layer of pressure to the metals market.

At the time of writing, the US Dollar Index, which measures the greenback against six major currencies, was up 0.1% near 101.50, its highest level in more than a year.

A stronger dollar makes precious metals more expensive for holders of other currencies, which can reduce demand and weaken prices.

For silver in particular, the combination of hawkish Fed expectations and dollar strength created a difficult backdrop.

The metal, which had already been under pressure, continued to slide as investors reassessed the near-term risk-reward balance.

PCE inflation data in focus

Investors are now looking ahead to the release of the US Personal Consumption Expenditure Price Index data for May, due on Thursday, for fresh signals on the Fed’s policy path.

The US core PCE inflation reading, which is the Fed’s preferred inflation gauge, is expected to rise to 3.4% year-on-year from 3.3% in April.

A stronger-than-expected reading could reinforce expectations that the central bank will keep policy tighter for longer, potentially maintaining pressure on precious metals.

Silver remains technically weak

Silver’s technical picture also points to continued weakness in the near term.

XAG/USD remains well below its 20-day Exponential Moving Average of $68.09, underlining the prevailing bearish bias.

Momentum indicators also show persistent downside pressure.

A further fall below that level would expose the metal to the psychological support of $50.00.

On the upside, the 20-day EMA at $68.09 remains the first major resistance.