<p>Price inflation is accelerating again, yet gold and silver have been struggling. Gold slipped about 0.7% last week to $4,166 an ounce. Silver took a much harder hit, falling <a href="https://www.moneymetals.com/silver-price">roughly 6.5% to $57</a>.</p>
<p>For investors who own precious metals to protect against declining purchasing power, that can seem backward.</p>
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<p>The explanation starts with what traders expect the Federal Reserve to do next. Hotter inflation raises the prospect of higher interest rates, which can pull money away from non-interest-paying assets such as bullion.</p>
<p>But last week came with a complication: Treasury yields and the dollar actually declined. Even that relief was not enough to keep metals from finishing lower.</p>
<p>Silver showed some early improvement Monday morning, reaching $58.</p>
<p>Buyers are testing the waters after last week’s decline. A morning bounce alone does not establish that the selling has run its course.</p>
<p>Fed Chairman Kevin Warsh offered little reassurance about the path of interest rates in remarks Friday. He emphasized price stability but declined to signal what the Fed would do at its October or December meetings.</p>
<p>Traders increasingly expect another rate increase by December. That leaves investors facing the possibility of tighter credit even as parts of the economy show strain.</p>
<p>Silver is especially vulnerable to that combination. It is a monetary metal, but it is also an industrial material. When investors worry that expensive energy and tighter credit will squeeze manufacturers and consumers, silver can suffer from both directions.</p>
<p>Energy remains a major complication. Brent crude rose nearly 5% last week to about $110 a barrel as attacks on commercial shipping and tensions around Iran and Yemen renewed supply concerns.</p>
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<p>Meanwhile, attacks on refineries combined with logistical complications have driven diesel over $200 per barrel.</p>
<p>Higher energy prices across the global economy can create an awkward environment for precious metals.</p>
<p>Geopolitical danger encourages defensive buying, while rising fuel costs can reinforce expectations of Fed tightening.</p>
<p>For silver, the additional threat to industrial activity makes the trade-off even more difficult.</p>
<p>But we are seeing an increase in physical buying of gold and silver – thanks to the lower prices, too. Especially with the lowest retail premiums on coins, bars, and rounds in over a year.</p>
