Silver price retreats as rising US yields, Hormuz tensions bolster US Dollar

Silver (XAG/USD) prices declined on Tuesday and hovered around $60.75 per ounce, slipping 0.38% for the day. The decline was driven by a surge in US Treasury yields and a stronger US Dollar (USD), as ongoing tensions in the Strait of Hormuz kept oil prices high and reignited inflation concerns. The 10-year US Treasury yield reached 5.28%, the highest level since 2007, while the bond sell-off was primarily due to worries that soaring energy prices might keep inflation elevated in the United States (US), thus prompting the Federal Reserve (Fed) to maintain a tight monetary policy.

Iranian Foreign Minister Abbas Araghchi disclosed that Iran had held indirect talks with the United States through Qatari mediators in New York, awaiting a formal response from Washington regarding Tehran's proposal for reopening the Strait of Hormuz. However, US President Donald Trump refuted claims that his administration had offered Iran sanctions relief or access to frozen funds.

The ongoing disagreements between the two sides make it unlikely for the Strait of Hormuz to see any relief, potentially keeping energy prices elevated and sustaining inflation expectations. Consequently, markets anticipate further rate hikes from the Fed, with a 70% chance of another increase at the October meeting according to the CME FedWatch tool.

This optimism for the US Dollar also supports Silver, as the precious metal yields no interest. Despite weaker-than-expected US economic data, such as a drop in the Conference Board Consumer Confidence Index to 81.9 in September and a decline in JOLTS Job Openings to 7.079 million in August, Fed Governor Michael Barr suggested that monetary policy should be "re-calibrated," indicating the potential need for additional adjustments.

Investors are now focusing on upcoming economic releases, including the Personal Consumption Expenditures (PCE) Price Index, the ISM Manufacturing Purchasing Managers Index (PMI), and the Nonfarm Payrolls (NFP) report, which could offer insights into the Fed's interest rate trajectory and its bearing on US Treasury yields, the US Dollar, and Silver.