On Monday (August 31) during Asian trading hours, spot silver fell for the second consecutive day, dropping to a more than one-week low of $65.58 per ounce, and is currently trading around $66.10 per ounce. Federal Reserve Chairman Warsh's hawkish comments at Jackson Hole hinted at further interest rate hikes, raising the probability of a September rate hike from 35% to 57.5%. Iran launched coordinated ballistic missile and anti-ship cruise missile attacks towards the Strait of Hormuz, and rising oil prices further pressured silver prices. This was a response to the US airstrike on Sunday against an Iranian launch site on Larak Island, marking the first direct US strike on an Iranian military target in over a month.

Warsh's hawkish remarks boosted expectations of interest rate hikes.

Federal Reserve Chairman Warsh explicitly stated that the Fed must be certain that underlying inflation is moving at a sufficient pace toward the 2% target, otherwise the Fed "has work to do," a statement interpreted by the market as a hawkish signal. Federal funds futures indicate that the probability of a September rate hike has surged from approximately 35% to 57.5%, with expectations for a December rate hike also rising. A high-interest-rate environment significantly increases the opportunity cost of holding non-interest-bearing assets, making funds more inclined to flow into high-yield dollar assets, thus weakening the investment appeal of silver. Silver possesses dual attributes as both a precious and industrial metal, making it particularly sensitive to interest rate changes and often underperforming gold when rate hike expectations rise. In the short term, if subsequent inflation data continues to support a hawkish stance, silver may face further downward pressure; conversely, if the data softens, a technical rebound may occur. Overall, monetary policy expectations remain the core variable dominating silver's near-term trend.

Escalating US-Iran conflict pushes up oil prices, further exacerbating the situation for silver.

Geopolitical risks escalated significantly over the weekend, further pressuring silver prices. Iran launched coordinated ballistic missiles and anti-ship cruise missiles toward the Strait of Hormuz in a direct response to the US airstrikes on Larak Island on Sunday. The escalating conflict pushed up oil prices, potentially exacerbating global inflation concerns and reinforcing the Federal Reserve's rationale for maintaining high interest rates, thus putting additional indirect pressure on silver. Although Washington has recently leaned more towards economic sanctions than direct military action, the risk of further conflict remains, with market risk aversion intertwined with inflation expectations. TD Securities points out that the theme of dollar depreciation has reignited macro demand for precious metals, providing potential support for silver, especially against the backdrop of recovering investment demand. In the short term, silver prices will fluctuate between hawkish interest rate pressures, oil-price-driven inflation concerns, and geopolitical safe-haven buying. If the conflict de-escalates quickly, a drop in oil prices may alleviate some pressure; if tensions persist, volatility will further intensify, and investors need to closely monitor subsequent military and diplomatic developments.

Institutional Views

Goldman Sachs, in its latest research report, believes that silver possesses both the safe-haven attributes of precious metals and industrial demand attributes (related to photovoltaics, electric vehicles, and AI). During a gold bull market, it often exhibits higher elasticity (high beta), but also significantly greater volatility. Despite a trend of reduced use in the solar energy sector, industrial and investment demand continues to provide support. While Warsh's hawkish remarks have temporarily boosted expectations of interest rate hikes and suppressed non-interest-bearing assets, Goldman Sachs maintains a structurally bullish view, believing that precious metals have entered a new pricing paradigm with a permanently elevated price center. Investors can pay attention to the correlation between gold price movements and the progress of energy transition, finding value in pullbacks, while also being wary of short-term shocks from interest rate and dollar fluctuations. Citigroup believes that investment demand will gradually take over and offset the impact of slowing consumption of traditional solar technology. Silver will continue to fluctuate in line with gold, but with a higher beta coefficient, potentially achieving greater gains when precious metals rise overall. The eventual easing of tensions in the Strait of Hormuz, a less hawkish stance from the Federal Reserve than expected, and a recovery in physical demand in markets such as India all provide support. Despite Warsh's remarks increasing the probability of a rate hike and causing a short-term pullback, Citigroup remains optimistic about the upside potential brought about by the recovery of investment flows.

Summarize

Spot silver fell for the second consecutive day to around $66.10 per ounce, as Warsh's hawkish comments raised the probability of a September rate hike to 57.5%. Escalating tensions between the US and Iran pushed up oil prices, further pressuring silver. TD Securities noted that the theme of a depreciating dollar has reignited macro demand for precious metals. Silver is likely to fluctuate in the $65-$68 range in the short term, awaiting developments in the US-Iran conflict and policy signals from the Federal Reserve. (Spot silver daily chart, source: EasyTrade) At 11:55 Beijing time, spot silver was trading at $66.14 per ounce.