Silver (XAGUSD) is down by over 3% on Wednesday as the precious metal’s performance continues to disappoint investors.
The decline comes amid surging Brent crude oil (BZ) prices, which are rallying in response to renewed tensions between the U.S. and Iran. These higher prices have buoyed the risk of inflation, which in turn has increased the odds of multiple rate hikes this year.
Rising Rate Hike Bets Pressure Silver
Silver tends to benefit from lower rates instead of higher rates. That’s because it doesn’t pay out interest, making it less attractive compared to interest-bearing assets when rates are higher.
Higher rates can help lower inflation because they increase borrowing costs and slow down spending and investment. By year-end, the odds of two 25 bps hikes are at 33.6%, up from 29.8% a day ago, according to the CME FedWatch tool. The odds of three hikes sit at 12.2% compared to 8.9%.