Key Highlights

  • Silver edged higher above USD 68 an ounce, having reached two-month highs earlier in the week.
  • Concerns over global Debt and dollar Debasement continue to support Demand despite hotter Inflation data.
  • Markets price a 38 per cent chance of a September rate hike and above 70 per cent by December, per the CME FedWatch Tool.

Silver edged higher above USD 68 an ounce on Thursday as investors awaited policy signals from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium on Friday. The metal reached two-month highs earlier in the week, and the modest gain places it close to that level rather than extending from it.

The policy backdrop

Data released on Wednesday showed the personal consumption expenditures price index rose 3.7 per cent year on year in July, slightly above expectations. Markets now price a 38 per cent probability of a September rate hike, with the probability of a hike by December above 70 per cent, according to the CME FedWatch Tool. Higher expected policy rates raise the Opportunity cost of holding a non-yielding metal, so on that channel alone the pricing argues against silver.

Silver held its ground regardless, which points to the second channel doing more work. Concerns over global debt continue to support demand for the metal, and the recent rally has been attributed to renewed concern over dollar debasement following the United States Treasury’s decision to increase Buybacks of older, long-dated bonds.

Two-month highs against gold’s three-month highs

One comparison is worth drawing out. Silver reached two-month highs this week while gold reached a more than three-month high, and gold posted its biggest one-day decline in a week before steadying, whereas silver edged higher. The two metals are responding to the same set of drivers, the Jackson Hole speech, the 3.7 per cent inflation print and the debasement concern, but silver has not extended as far back into its own range.

That difference reflects the dual nature of silver. It carries the monetary characteristics that gold carries, and it also carries industrial demand that gold does not. When the driver is purely a store-of-value argument, as it currently is, gold tends to lead. The narrower recovery in silver is consistent with a rally led by monetary rather than industrial factors.

What Friday changes

Warsh’s debut address is the immediate catalyst. Investors are looking for indications on the path toward bringing inflation back to target. Because it is a first Jackson Hole speech from a new chair, the framework carries more weight than a routine communication would, and until it is delivered the market has limited basis for repricing.

Silver therefore sits above USD 68, close to two-month highs, with a known inflation print of 3.7 per cent, rate-hike odds that are material but not settled for September, and a dated catalyst on Friday.

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