Higher US yields weigh on silver price as Iran tensions cushion losses

• A decline of nearly 0.9% leaves silver lower on Wednesday, with higher Treasury yields and a firmer US dollar putting pressure on precious metals.
• Inflation worries intensify as oil prices rise, strengthening expectations that the Federal Reserve will tighten monetary policy further.
• Safe-haven demand linked to continuing tensions between the United States and Iran offers silver some support, curbing its losses.

At around $57.50, silver (XAG/USD) is down 0.89% on the day at the time of writing, extending its retreat on Wednesday. Higher United States (US) Treasury yields, together with a modest rebound in the US Dollar (USD), are diminishing the appeal of non-yielding assets and keeping the precious metal under pressure. Rising oil prices are also stoking inflation concerns, bolstering expectations of additional monetary tightening by the Federal Reserve (Fed).

Having touched a nearly three-week low on Tuesday, the US dollar is regaining ground as Treasury yields climb and expectations grow that the Fed will keep monetary policy restrictive. Since silver pays no interest, higher borrowing costs generally undermine its appeal by making interest-bearing assets comparatively more attractive to investors.

Uncertainty over talks between Washington and Tehran is fuelling fears of extended disruption to global energy supplies, lifting Brent Crude by approximately 1.6% on Wednesday. The rise in oil prices is adding to the pressure on precious metals.

Renewed mediation efforts have yet to produce a diplomatic resolution to the conflict. Arriving in Tehran on Tuesday, Pakistan's Army Chief Asim Munir sought to facilitate talks between the United States and Iran. Significant obstacles reportedly emerged, however, when Tehran rejected the transfer of its enriched nuclear material abroad.

While reaffirming Washington's plan to keep economic pressure on Tehran, US Secretary of State Marco Rubio acknowledged earlier this week that securing a peace agreement with Iran remains extremely difficult. Separately, Iranian Foreign Minister Abbas Araghchi indicated that the Strait of Hormuz would stay closed until the United States agrees to Iran's conditions.

With this strategic shipping route still disrupted, concerns over global oil supplies are underpinning energy prices and heightening the risk that inflation will persist. This backdrop strengthens expectations of a possible further Fed interest rate rise in December, adding to the pressures facing silver.

A near 90% probability of another December interest rate increase is currently priced into financial markets, according to the CME FedWatch tool. Last week's stronger-than-expected US inflation figures have bolstered those expectations by deepening concerns that price pressures remain persistent.

Demand for safe-haven assets arising from geopolitical uncertainty in the Middle East could, nevertheless, contain silver's losses. The metal is caught between opposing forces: geopolitical risks provide a measure of support, but higher yields and expectations of tighter monetary policy exert downward pressure on prices.

The Fed's monetary policy meeting on 28 October is the next focus for investors, ahead of the US Personal Consumption Expenditures (PCE) Price Index release on 29 October. As the central bank's preferred inflation measure, the report could offer fresh clues to the path of US interest rates and help shape the direction of silver prices.