Key Highlights

  • Silver surged more than 3.67 percent to around $59.80 an ounce, its highest level since July 10.
  • Treasury Secretary Scott Bessent said an agreement to reopen the Strait of Hormuz could be reached today or tomorrow.
  • The implied probability of a September Fed rate hike fell to 57 percent.
  • New York Fed President John Williams said inflation continues to move gradually lower.

A Sharp Rally to a Multi-Week High

Silver surged more than 3% to $59.8 per ounce on Tuesday, its highest level since July 10, as investors evaluated diplomatic efforts to ease US-Iran tensions and their implications for oil prices, inflation, and the Federal Reserve's policy outlook. US Treasury Secretary Scott Bessent said an agreement to reopen the Strait of Hormuz could be reached as soon as today or tomorrow, while Qatari Foreign Ministry spokesperson Majed al-Ansari said negotiations remain underway, with de-escalation and reopening the strategic waterway remaining the key priorities.

The developments led markets to pare expectations for a September Fed rate hike, with the implied probability falling to 57 percent. Silver's gain of more than 3.67 percent notably outpaced gold's roughly 0.85 percent rise on the same day, consistent with the metal's historically higher volatility during periods of shifting monetary policy expectations.

Rate Expectations Shift as Markets Await Labor Data

Investors are now focused on upcoming US labor market data for further signals on the Fed's policy path, with the outcome likely to either reinforce or challenge the recently reduced rate hike probabilities. New York Fed President John Williams said inflation continues to move gradually lower but reiterated that the central bank stands ready to raise interest rates if price pressures persist, maintaining a data-dependent stance despite the recent shift in market expectations.

Silver's outsized rally relative to gold suggests the metal is particularly sensitive to the anticipated reduction in Fed rate hike odds, given its dual role as both a precious and industrial metal. This heightened sensitivity has historically made silver a more volatile vehicle for expressing views on monetary policy shifts compared with gold, a pattern that appears to be playing out clearly in Tuesday's trading.

Balancing Rate Path Optimism Against Upcoming Labor Data Risk

Silver's near term trajectory will likely depend heavily on how upcoming US labor market data shapes the trajectory of Fed rate hike expectations following this week's reduction to 57 percent. Should labor data come in weaker than expected, reinforcing the case for a more dovish Fed path, silver could extend its recent gains given its pronounced sensitivity to rate expectations.

Conversely, stronger than expected labor data, or a breakdown in the Strait of Hormuz negotiations, could quickly reverse the current rate hike odds reduction and pressure silver given the metal's historically amplified reaction to shifting monetary policy expectations relative to gold. John Williams' continued hawkish-leaning caveat about the Fed's readiness to act on inflation adds a further layer of uncertainty to silver's near term path.

Conclusion

Silver's sharp rally to its highest level since July 10 reflects the metal's outsized sensitivity to the reduction in September Fed rate hike odds following diplomatic progress on the Strait of Hormuz. Whether silver extends its gains may depend heavily on upcoming labor market data and how the ongoing Hormuz negotiations ultimately resolve. The scale of silver's move relative to gold's more modest gain underscores the metal's characteristic volatility during periods of shifting monetary policy sentiment.