Silver Price Falls 2% Below $65 as Oil Rally Lifts Fed Hike Odds

Key Takeaways

• Silver reversed from a seven-week high near $66.48 and fell towards $64.50, representing a daily decline of almost 2%.
• Market pricing placed the probability of a 25-basis-point Fed rate increase in September at around 51.7%, up from 44.4% after the latest jobs report.
• China imported 219,000 tonnes of silver-bearing ores in June, an increase of 62.5% year-over-year, highlighting continued industrial demand.

Silver Reverses After Reaching a Seven-Week High

Silver prices reversed sharply on Tuesday, August 11, falling below $65 per troy ounce after briefly reaching a seven-week high. XAG/USD climbed as high as approximately $66.48 during early trading before retreating towards $64.50, leaving the metal down nearly 2% from the previous close.

The reversal followed two sessions of strong gains driven by weaker US employment data and renewed investment demand for precious metals. However, rising crude oil prices, firmer Treasury yields and a rebound in Federal Reserve rate-hike expectations encouraged traders to reduce exposure to non-yielding assets.

The silver price entered Tuesday’s session with positive momentum after gaining during the previous two trading days. Softer US labour-market data had initially reduced expectations that the Federal Reserve would raise interest rates again in September, weakening the dollar and supporting precious metals.

Oil Rally Revives Inflation Concerns

Crude oil prices extended their advance as uncertainty surrounding negotiations between the United States and Iran reduced expectations that the Strait of Hormuz would reopen quickly.

Brent crude rose above $89 per barrel, while West Texas Intermediate traded above $83. The gains followed an increase of approximately 5% during the previous session, when fading hopes of a diplomatic breakthrough intensified concerns about global energy supplies.

The Strait of Hormuz remains one of the world’s most important energy routes. Any prolonged disruption can restrict oil and liquefied natural gas shipments, raise transport costs and place additional pressure on consumer prices.

Higher oil prices do not automatically lead to an interest-rate increase. However, a sustained energy rally can feed into fuel, transport, manufacturing and distribution costs. This complicates the Federal Reserve’s efforts to control inflation, particularly when price pressures remain above its target.

US Treasury yields moved higher alongside oil. The 30-year Treasury yield approached 5.24%, close to its highest level in approximately 19 years. Rising long-term yields created another obstacle for silver and other non-yielding precious metals.

September Fed Decision Returns to Centre Stage

Market expectations for the Federal Reserve’s September meeting changed significantly following the oil rally.

CME FedWatch pricing placed the probability of a 25-basis-point rate increase at approximately 51.7%, compared with 44.4% after weaker-than-expected US employment data. The earlier jobs report had briefly made an unchanged policy rate the more likely outcome.

The rapid change demonstrates how sensitive interest-rate expectations have become to incoming economic information. Evidence of weakening employment supports the argument for keeping rates unchanged, while renewed inflation pressure strengthens the case for another increase.

Investors will now focus on this week’s US consumer and producer inflation figures. A stronger-than-expected reading could reinforce expectations for a September increase, potentially supporting the dollar and Treasury yields while placing further pressure on silver.

A cooler inflation report could have the opposite effect. It would suggest that the labour-market slowdown is becoming more important than the oil-driven inflation risk, potentially reducing rate-hike expectations and improving the environment for precious metals.

Gold and Silver Pause After Recent Gains

Silver’s retreat coincided with a broader pause across precious metals. Gold eased towards $4,366 per ounce after briefly reaching approximately $4,435, its highest level in more than two months.

Both metals had benefited from the weaker US employment report, which raised concerns about economic momentum and initially reduced expectations for additional monetary tightening. Improving investment flows and geopolitical uncertainty also encouraged demand for precious metals.

Silver generally experiences larger percentage movements than gold because its market is smaller and industrial demand represents a greater share of total consumption. The metal can therefore rise more quickly during a precious-metals rally but also retreat more sharply when yields or the dollar recover.

What Could Move the Silver Price Next?

US inflation data is likely to provide the next major direction for XAG/USD. The market will assess whether higher energy costs are beginning to spread into broader consumer and producer prices.

Oil prices and developments surrounding the Strait of Hormuz will remain equally important. Progress towards reopening the waterway could lower energy prices and ease inflation fears. A further deterioration in negotiations could keep crude prices and Treasury yields elevated.

From a price-action perspective, the area around $64 represents the immediate level to monitor after Tuesday’s reversal. A sustained recovery above $66–$66.50 would indicate that precious-metals demand remains strong, while a decisive move below $64 could expose the lower levels reached before the latest two-day rally.

These levels are reference points rather than guaranteed barriers. Silver remains vulnerable to rapid moves as traders balance Fed policy, inflation, geopolitical risk and industrial demand.

Conclusion

Silver’s decline below $65 reflects the return of interest-rate concerns after its brief rise to a seven-week high. Surging oil prices have increased inflation uncertainty, lifted Treasury yields and pushed the probability of a September Fed rate increase back above 50%.

At the same time, rapidly growing Chinese imports of silver-bearing ores demonstrate that industrial demand remains firm. The near-term silver price outlook will therefore depend on whether US inflation and rising energy costs outweigh support from physical consumption, geopolitical uncertainty and investment demand.