Silver set for weekly loss as Middle East tensions fuel inflation

Silver prices stayed under pressure on Friday, trading below $56 per ounce.

The metal was on track for a weekly loss of more than 7% as escalating Middle East tensions pushed oil prices higher and heightened inflation and interest rate concerns.

The silver price (XAG/USD) traded around $55.50 per troy ounce during Asian trading hours on Friday.

The metal remained subdued for a third consecutive session as investors shifted their focus toward rising energy costs and their potential impact on inflation.

The sharp increase in oil prices has kept inflation concerns at the forefront of market sentiment.

As a result, investors have reduced exposure to non-yielding assets such as silver, which typically struggle in an environment of elevated interest rate expectations.

Middle East conflict raises energy supply concerns

Market sentiment remained cautious after military tensions between the United States and Iran intensified this week.

The United States launched multiple strikes against Iran during the week.

President Donald Trump also warned that the US could target Iran's infrastructure next week.

Iran responded by launching attacks on US military bases in neighboring countries.

The developments heightened fears of a broader regional conflict and a prolonged disruption to energy supplies, contributing to higher crude oil prices.

The rally in oil prices has strengthened concerns that inflationary pressures could remain elevated.

Gold also posts a sharp weekly decline

Gold prices edged higher on Friday but remained on course for their steepest weekly decline in six weeks.

Spot gold rose 0.5% to $3,988.20 per ounce after earlier falling to its lowest level since July 1.

August gold futures were little changed at around $3,992 per ounce.

Despite Friday's modest rebound, gold has declined about 3.2% for the week.

The weekly losses highlight how concerns surrounding rising oil prices, inflation, Treasury yields, and the Federal Reserve have outweighed the traditional safe-haven demand typically associated with geopolitical uncertainty.

Softer inflation data offers limited support

US inflation data released this week came in softer than expected, largely removing expectations of a Federal Reserve interest rate increase in July.

Despite the softer inflation figures, Federal Reserve Chair Kevin Warsh reiterated his commitment to restoring price stability, signaling that policymakers remain focused on controlling inflation.

However, investors remain divided over whether the Federal Reserve will raise interest rates in September.

The uncertainty has continued to weigh on silver, as higher interest rates reduce the appeal of non-yielding precious metals.

Markets weigh geopolitical risks against monetary policy

Precious metals faced sustained selling pressure throughout the week as investors assessed the economic impact of rising geopolitical tensions.

As a result, both silver and gold remained under pressure, with silver heading for a weekly decline of more than 7% and gold set to record its sharpest weekly loss in six weeks.