On Wednesday (September 2) during the Asian session, spot silver fluctuated narrowly, currently trading around $64.00 per ounce. A surge in US Treasury yields (the 10-year yield rose to 4.816%, a new high since November 2023) and the probability of a Fed rate hike in September rising to 67% continued to suppress silver, a non-interest-bearing asset.

Soaring US Treasury yields and expectations of interest rate hikes weighed on silver prices.

Spot silver traded around $64.00 per ounce in Asian trading on Wednesday, remaining under pressure from both the rapid rise in US Treasury yields and increasing expectations of interest rate hikes. The 10-year US Treasury yield rose to 4.81%, a new high since November 2023, significantly increasing the opportunity cost of holding silver, a non-interest-bearing asset. Meanwhile, market pricing in a September rate hike by the Federal Reserve has risen to approximately 67%. Fed Chairman Warsh's hawkish speech in Jackson Hole warned of continued upside risks to inflation, and Governor Barr also explicitly stated that the central bank needs to be prepared to raise interest rates if price pressures do not ease quickly. Warsh's remarks are consistent with his previous stance, reiterating that the Fed still has "work to do" if inflation does not decline at a sufficient pace, further reinforcing market expectations of continued tightening. Under the combined effect of these factors, silver, as a precious metal, is under significant pressure in the short term, with limited rebound momentum. Investors should be wary of the downside risks from continued strengthening of yield and interest rate expectations.

The market awaits ADP employment data; silver is bearish in the short term.

The market is closely awaiting the US ADP employment data (expected increase of 48,000, previous value 44,000) for the latest clues on the job market. Friday's non-farm payroll report will be the most important catalyst this week. Silver remains under pressure from interest rate hike expectations in the short term, with a bearish bias. However, the escalating US-Iran conflict may provide some safe-haven support, limiting the decline. Strong ADP or non-farm payroll data will further increase the probability of a September rate hike, exacerbating the pressure on non-interest-bearing assets, and silver may accelerate its decline. Conversely, significantly weak data may ease rate hike expectations, providing silver with breathing room and room for a rebound. Overall, employment data and geopolitical developments will jointly determine the short-term direction of silver. Investors should remain cautious and closely monitor changes in interest rate expectations.

Institutional Views

Despite the hawkish remarks from Federal Reserve Chairman Warsh and escalating geopolitical conflicts in the Middle East triggering a short-term sell-off in the silver market, pushing prices down to around $64/oz, UBS believes that gold, as the core anchor asset for silver pricing, is likely to offset the negative impact of weakening industrial demand and investment outflows on silver to some extent. UBS had previously significantly lowered its supply shortage expectations and believed silver would "roughly trade sideways," but the latest path shows a clearer gradual upward trend. The bank emphasizes that as long as gold prices remain resilient, silver is expected to follow suit and reach new highs over a longer period. Short-term pressure is attributed to expectations of interest rate hikes, but medium-term supply and demand dynamics and safe-haven properties continue to provide support. Bank of America points out that although solar energy demand has slowed, it is insufficient to reverse the market shortage, and electrification and power infrastructure investment continue to provide long-term support. Bank of America acknowledges that energy disruptions and macroeconomic headwinds may drag down demand in the short term, but believes there is still room for price increases after a correction. Overall, silver remains attractive in the medium term due to its industrial attributes and investment demand, and suggests focusing on allocation opportunities after interest rates peak.

Summarize

US Treasury yields rose to 4.816%, and a 67% probability of a September rate hike weighed on silver prices. Hawkish comments from Warsh and Barr reinforced tightening expectations. The market awaits ADP and non-farm payroll data. Silver is likely to fluctuate between $63.50 and $65.00 in the short term, with its future direction determined by both US employment data and the situation in the Middle East. (Spot silver daily chart, source: EasyTrade) At 15:08 Beijing time, spot silver was trading at $64.15 per ounce.