Silver drops below $65 as hawkish Fed bets weigh on XAG/USD

Silver (XAG/USD) extends its decline on Tuesday, trading around $64.85 at the time of writing, down 2.54% on the day. The white metal slips below the key $65.50 area as prospects of tighter US monetary policy continue to weigh on precious metals.

Expectations surrounding the Federal Reserve (Fed) have shifted significantly following Chair Kevin Warsh’s hawkish comments at the Jackson Hole Symposium on Friday. The US central bank chief indicated that interest rates may need to rise if inflation fails to slow sufficiently, increasing pressure on non-yielding assets such as Silver.

Rising energy prices add to inflation concerns. Tensions in the Middle East support Oil prices and fuel the risk of renewed price pressures, a scenario that could strengthen the case for a more restrictive Fed monetary policy.

According to the CME Group FedWatch Tool, markets now see more than a 65% chance of an interest rate hike at the September 15-16 meeting. These expectations also help support the US Dollar (USD), creating an additional headwind for Silver.

Investors, however, remain cautious ahead of several US macroeconomic releases that could reshape these expectations. The Institute for Supply Management (ISM) releases its Manufacturing Purchasing Managers Index (PMI) for August on Tuesday, while the Job Openings and Labor Turnover Survey (JOLTS) report is expected to provide fresh insights into US labor demand.

Attention will then turn to the Nonfarm Payrolls (NFP) report on Friday. The employment figures are likely to play an important role in shaping expectations for the Fed’s policy path ahead of its September meeting. Strong data could reinforce monetary tightening expectations and keep Silver under pressure, while clearer signs of labor market weakness could temper hawkish Fed bets.