On Friday (August 21) during Asian trading hours, spot silver rose for the third consecutive trading day, climbing as much as 1.65% to a new high of $69.20 per ounce since June 19. It is currently trading around $69 per ounce, with a cumulative gain of over 6% this week. News of the US Treasury expanding its long-term debt buyback program initially pushed US Treasury yields and the dollar sharply lower, providing strong support for silver. Even though Wednesday's losses were gradually recovered in the following two trading days, silver still maintained most of its gains, reflecting investor doubts about the effectiveness of government measures to control long-term borrowing costs, as well as safe-haven demand amid increased volatility in the currency and bond markets. However, escalating tensions between the US and Iran pushing up energy prices, and rising inflation risks and expectations of interest rate hikes may limit further upside potential for silver.

US Treasury repurchase agreements and a weaker dollar drove a surge in silver prices.

Silver prices rose more than 6% this week, primarily driven by the U.S. Treasury's announcement that it would at least double the size of its long-term debt buyback program. This move, aimed at curbing borrowing costs, pushed U.S. Treasury yields and the dollar sharply lower. Even though yields recovered most of Wednesday's losses in the following two trading days, silver maintained its upward momentum—investors worried that the government's efforts to control long-term borrowing costs might only be temporary, and market demand for safe-haven assets amid increased currency and bond market volatility continued to rise. A strategist at Brown Brothers Harriman noted, "U.S. long-term Treasury yields have recovered most of the losses triggered by Wednesday's Treasury buyback announcement, while the dollar continued its decline." He characterized the buyback move as a debt management operation—the initial reaction of long-term yields has largely reversed, but the dollar is still weakening, highlighting lingering market doubts about the policy signals implied by the Treasury's actions.

Energy prices and inflation risks may limit the upside potential for silver prices.

However, further upside potential for silver may be limited by rising energy prices. The escalating standoff between the US and Iran over control of the Strait of Hormuz, coupled with persistently high oil prices, continues to highlight inflation risks and fuel expectations of interest rate hikes. TD Securities points out that the oil supply environment remains tight, with "negotiations stalled for weeks, shifting towards economic pressure," reinforcing the assessment that "market oil supply will remain tight." The bank warns that "Iranian attacks on shipping routes to Oman could become the norm," and geopolitical risks continue to support a structurally strained oil market. The Trump administration is preparing to impose severe restrictions on the Iranian economy, which Trump has called "the economic Normandy landings," with formal details expected to be released on Monday. The US measures aim to sever Tehran's global business and financial networks, targeting banks, ship registrations, cash transfers, and smuggling activities, in order to force Iran to negotiate on its nuclear program and regional passage rights.

Institutional Views

Goldman Sachs' latest research report suggests that if industrial demand remains resilient, coupled with the overall safe-haven and investment attributes of precious metals, silver still has room to rise. Goldman Sachs is focusing on global supply chain and new energy-related demand, while also noting that real interest rates and the dollar's trajectory remain important variables. Citigroup analysts believe that investment demand will gradually surpass industrial demand as the main price driver. Key catalysts include a potential easing of tensions in the Strait of Hormuz and a less hawkish stance from the Federal Reserve. Citigroup expects the global silver market to remain in short supply until at least 2027, with demand from artificial intelligence, 5G, and electric vehicles partially offsetting the pressure from the "de-silverization" of the photovoltaic sector. As a high-beta variety of gold, silver is expected to outperform gold prices, with significant upside potential in the short to medium term.

Summarize

Silver rose over 6% this week, primarily driven by the US Treasury's expanded long-term bond buybacks, which pushed down US Treasury yields and the dollar. Even though yields have recovered most of their losses, investor concerns about the effectiveness of government measures to control borrowing costs and increased safe-haven demand due to heightened volatility in the currency and bond markets continue to support silver prices. However, escalating tensions between the US and Iran are pushing up energy prices, and rising inflation risks and expectations of interest rate hikes may limit further upside for silver. TD Securities warned that Iranian attacks on shipping routes to Oman could become commonplace, leading to continued tight oil supplies. (Spot silver daily chart, source: EasyTrade) At 14:50 Beijing time on August 21, spot silver was trading at $68.96 per ounce.