On Friday (August 7) during Asian trading hours, spot silver rose nearly 3%, reaching a one-and-a-half-month high of $63.42 per ounce as of 14:15. The market is awaiting the US July non-farm payroll report, which will be a key indicator of the Federal Reserve's interest rate outlook. However, oil prices rebounded sharply due to geopolitical risks, reigniting market concerns about inflation and interest rate hikes, which may limit further upside potential for silver prices.

Non-farm payroll data becomes a key short-term catalyst

Market focus has shifted to Friday's release of the US July non-farm payrolls report. This data will significantly impact the Federal Reserve's interest rate expectations—with the Fed no longer providing forward guidance, the market can only infer policy direction from economic data. TD Securities, a well-known institution, predicts that July non-farm payrolls will moderately rebound to 70,000 after unexpectedly falling to 57,000 in June, indicating that the pace of hiring remains moderate. The firm also expects the unemployment rate to remain unchanged at 4.2%, consistent with June's level, suggesting that the labor market remains stable rather than significantly weakening. Weak non-farm payroll data will further reinforce the market's assessment of a decline in Fed rate hike expectations, providing support for silver, a zero-yield asset; strong data could trigger a revision of rate hike expectations, putting downward pressure on silver prices.

Oil price rebound limits silver price upside.

Globally, the waning hopes for a full reopening of the Strait of Hormuz in the short term have fueled a sharp rebound in oil prices. WTI crude oil prices held steady near Thursday's rebound high of $77.00 per barrel. Rising oil prices are pushing up global inflation expectations, exacerbating market concerns about central bank interest rate hikes. For silver, a zero-yield asset, interest rate hike expectations typically act as a drag – higher interest rates increase the opportunity cost of holding silver. Therefore, the oil price rebound may limit the upside potential of silver prices and even pose a risk of a pullback. This logic is hedging against the safe-haven demand for silver. Geopolitical risks have boosted safe-haven buying of silver, but inflation concerns stemming from the oil price rebound are putting downward pressure on silver prices through interest rate hike expectations.

Institutional Views

In its latest research report, JPMorgan Chase pointed out that the slowdown in photovoltaic demand and the accelerated adoption of "silver-free" solar cell technology are the biggest long-term risks, and industrial consumption may face further pressure. Meanwhile, the more hawkish stance of the Federal Reserve under Warsh's leadership, a stronger dollar, and investor positioning adjustments also limit the upside potential for prices. JPMorgan Chase emphasized that although the global silver market is still in a sixth consecutive year of supply shortage (officially estimated at a shortfall of approximately 46.3 million ounces), the degree of shortage is no longer sufficient to support previous high expectations. Short-term risks are skewed to the downside; if speculative positions are further liquidated, prices could even test $50. UBS, in a research report at the end of July, believes that the photovoltaic industry is accelerating its shift to low-silver or silver-free technologies due to high silver paste costs, coupled with a decrease in ETF holdings of approximately 70 million ounces, leading to weakening industrial and investment demand. Although structural shortages persist, the gap has narrowed significantly, making it difficult for silver to continue the extreme price surge of the first half of the year. UBS expects prices to mainly consolidate or moderately recover, remaining constrained by Federal Reserve policy and the dollar's performance in the medium term.

Summarize

Spot silver hit a one-and-a-half-month high, with the market awaiting the US non-farm payrolls report for clearer direction—TD Securities expects a modest recovery in employment to 70,000 and the unemployment rate to remain flat at 4.2%. However, waning hopes for the reopening of the Strait of Hormuz, which fueled a sharp rebound in oil prices, reignited market concerns about inflation and interest rate hikes, potentially limiting further upside for silver. Silver is currently facing a tug-of-war between safe-haven demand and expectations of interest rate hikes. The non-farm payrolls data will be a key variable determining the short-term direction of silver prices. (Spot silver daily chart, source: EasyTrade) At 14:16 Beijing time on August 7, spot silver was trading at $63.37 per ounce.