Silver slides below $65 as US PPI revives Fed rate-hike bets

Silver (XAG/USD) slid below the $65 mark on Thursday, declining 4.39% on the day to trade around $64.35 per ounce. The white metal faced pressure due to surging US Treasury yields and a stronger US Dollar (USD). Inflation data released heightened the likelihood of tighter monetary policy from the Federal Reserve (Fed). The US Producer Price Index (PPI) rose 0.4% month-over-month in August, in line with expectations but faster than the 0.1% increase in July.

On an annual basis, producer inflation climbed to 5.4%, slightly above the 5.3% forecast and up from 4.8% previously. Inflationary pressures seem somewhat moderate when looking at the PPI excluding food and energy, which rose 0.2% month-over-month in August, below the expected 0.3% and the previous 0.3% increase. Annualized, this measure rose to 4.6% from 4.3% in July, as expected.

The CME FedWatch tool suggests a 70% chance of a rate hike at the Fed's next meeting, up from around 61% previously. This situation is unfavorable for silver as it has no yield and becomes more expensive for investors using other currencies when interest rates rise. The US Dollar Index (DXY) traded higher at around 98.90, making silver more expensive for investors holding other currencies.

US Treasury yields also played a role, with the benchmark 10-year yield trading around 4.92%, its highest level since November 2023, following the failure of the Treasury's expanded bond buyback plan. Attention now shifts to US Consumer Price Index (CPI) data due on Friday. Another inflation surprise could further tighten expectations of a Fed rate hike, keeping silver under pressure.

A softer CPI reading could ease concerns about further monetary tightening and provide some relief to the precious metal.