Spot silver prices rebounded slightly in Asian trading on Tuesday (September 29), currently trading around $60.80 per ounce, but remain in the lows since August 6. The scenario of higher interest rates from the Federal Reserve increasing yields on interest-bearing assets has diminished the attractiveness of non-interest-bearing assets such as silver.

Expectations of a Federal Reserve rate hike are weighing on silver prices, with the market pricing in a 70% probability of a rate hike in October.

The core reason for the downward pressure on silver prices lies in the market's firm expectation of further interest rate hikes by the Federal Reserve. Higher policy rates will increase the yields of interest-bearing assets such as Treasury bonds, thus significantly weakening the relative attractiveness of silver as a non-interest-bearing asset. Investors in a rising interest rate environment are more inclined to allocate to assets that can generate interest returns, leading to sustained selling pressure on silver. According to the latest data from the CME FedWatch tool, the market's probability of a 25 basis point rate hike by the Federal Reserve at its October policy meeting has risen to approximately 70%. This high probability expectation makes it difficult for silver to obtain sustained buying support in the short term. The repricing of the interest rate path not only pushes up the dollar and US Treasury yields but also directly compresses the valuation space of precious metals, with silver, as a more volatile metal, being particularly negatively affected.

TD Securities: October rate hike more likely, with one hike expected in October and one in January.

TD Securities explicitly stated that "an October rate hike looks more likely." The bank's economists believe the Federal Reserve is "unlikely to regain confidence in inflation progress before its October meeting." Since "most policymakers expect further tightening," they judged that "waiting until December to raise rates makes no sense." Based on this, TD Securities "expects the Fed to raise rates twice more (in October and January)," noting that "inflation remains above target, while risks are growing." They also observed that "the labor market has stabilized, with some signs of strengthening, and activity data is robust." In their view, "the economy can withstand more constraints, and the Fed is now providing those constraints," and "the evolution of inflation data will determine the magnitude and pace of rate hikes later in the cycle." This view reinforces market expectations of a tightening path, further suppressing the performance of non-interest-bearing assets, including silver.

The market awaits JOLTS job vacancy data.

Investors are focused on the upcoming release of the US August JOLTS job openings data. The market widely expects employers to post approximately 7.23 million new job openings, slightly lower than July's 7.271 million. JOLTS data is a key leading indicator of the health of the labor market, reflecting companies' hiring intentions and the strength of labor demand. Stronger-than-expected data will further reinforce the narrative of labor market resilience, thereby increasing expectations of a Federal Reserve rate hike and putting additional downward pressure on silver. Conversely, significantly weaker-than-expected data could alleviate pressure for rate hikes, providing some breathing room for silver. The market will pay close attention to details such as the job vacancy rate, turnover rate, and hiring rate to determine whether the job market remains overheated.

Diplomatic hopes between the US and Iran have improved slightly, and the geopolitical risk premium may have partially subsided.

Geopolitically, there are some signs of easing tensions in US-Iran diplomacy. Iranian Foreign Minister Araqchi stated on Monday that Tehran had discussed proposals to be submitted to the US with Qatari mediators, adding that the US response would be conveyed to Tehran through the Qatari mediators. The two countries are currently communicating indirectly about the proposals through third-party mediators, and diplomatic channels remain open. Progress in US-Iran negotiations could partially alleviate the geopolitical risk premium in the Middle East, thereby reducing market demand for safe-haven assets such as silver. However, the negotiations still lack substantial breakthroughs, and the differences between the two sides on key issues have not been resolved, leaving geopolitical uncertainty unresolved. Any progress or setbacks in the negotiations could trigger short-term fluctuations in silver prices, but overall safe-haven support has weakened at present.

Summarize

Spot silver traded around $60.80 per ounce in Asian trading on Tuesday, with expectations of a Fed rate hike being the core downward pressure. The market is pricing in a 70% probability of a rate hike in October, with TD Securities predicting one hike each in October and January, believing the economy can withstand further restrictions. Investors are awaiting the US August JOLTS job openings data, expected to show 7.23 million, slightly lower than July's 7.271 million. Slight improvement in US-Iran diplomatic hopes may partially alleviate geopolitical risk premiums. Going forward, attention will be focused on JOLTS data, statements from Fed officials, progress in US-Iran negotiations, and the movements of the dollar and yields. If the data supports a hawkish stance or strengthens rate hike expectations, silver may decline further; if the data weakens or geopolitical tensions ease, silver may find some respite. Against the backdrop of Fed tightening expectations, silver still faces downward pressure in the short term. (Spot silver daily chart, source: EasyTrade) At 15:00 Beijing time, spot silver was trading at $60.81 per ounce.