Silver selloff risk rises as markets price 36% July rate-hike chance

Silver traders face a critical 48 hours as Fed Chairman Kevin Warsh speaks Wednesday followed by the June non-farm payrolls report Thursday.

Silver traded in a narrow range near recent lows Wednesday as markets priced a 36% chance the Fed raises rates in July.

"The move higher in Treasury yields is giving the dollar some broad support ahead of Warsh's speech and US non-farm payrolls data tomorrow," David Forrester, senior strategist at Credit Agricole CIB in Singapore, said.

The Bloomberg Dollar Spot Index rose 0.1% Wednesday, extending a 0.6% gain last quarter, as 10-year Treasury yields jumped 9 basis points Tuesday to 4.46%. Gold dropped 0.8% to $3,976.03 an ounce, with silver and other precious metals also retreating on speculation the Fed may tighten policy.

The Fed's next policy meeting is July 29, with swaps pricing about 9 basis points of a quarter-point hike — up from near zero before Chairman Warsh took office and put price stability at the center of policy. Thursday's June payrolls report, with consensus estimates ranging from 70,000 to 130,000 jobs added, will provide the next major data point for rate expectations.

The May non-farm payrolls report showed an increase of 172,000 jobs, beating expectations, while the unemployment rate held at 4.3%. A stronger-than-expected June reading could reinforce the case for tighter policy, strengthening the dollar and pressuring precious metals. A weaker print, by contrast, could ease rate-hike fears and support silver.

Job openings were little changed in May, showing steady labor demand, while consumer confidence edged higher in June as lower gasoline prices helped offset concerns about the job market, according to Commerce Department data.

Silver's inability to mount a meaningful recovery despite stabilizing above recent lows leaves it vulnerable to a selloff if Warsh strikes a hawkish tone or if payrolls data surprises to the upside. The metal has been range-bound as traders weigh the competing forces of physical demand against the headwind of a rising dollar.

This article is for informational purposes only and does not constitute investment advice.