Silver declines and returns below $ 26.00 as USD recovers modestly

• XAG / USD is trading just below the $ 26.00 level having fallen below it amid a slight upward correction in USD.
• But the fundamental outlook remains favorable for the precious metal, with real yields still falling and inflation expectations high.

Silver Spot Prices (XAG / USD) they have fallen back below $ 26.00 on the last trading day of the week, having reached the $ 26.10 level on Thursday. Although silver prices are below the daily lows of $ 25.60, the precious metal is still trading at a loss of around 0.6% or 15 cents.

The main reason why precious metals, particularly silver, have been lower on Friday is the slight recovery in the USD. In fact, the dollar index (DXY) has recovered to the 90.00 level from yesterday’s lows of 89.70. Nothing in particular has changed for the USD fundamentally speaking (markets are still expecting a dovish Fed and fiscal stimulus in the new year), so Friday’s move is likely the result of shorts taking profit / position adjustments on the last day of the week. which, incidentally, is the last trading day of the calendar year for many (lucky) market participants who will take the rest of the year off to enjoy Christmas with their families.

The picture of precious metals remains optimistic

Despite Friday’s small losses for silver (and other precious metals such as palladium and platinum), the outlook for the precious metal remains favorable. Yields on US 10-year TIPS (the real yield of the US 10-year bond) have fallen back to yesterday’s lows of -1.06% (currently trading around -1.04%) and inflation expectations remain close to Recent highs above 1.9%.

For reference, two key drivers of precious metal demand are 1) real U.S. bond yields (the lower, the more attractive it is to hold precious metals without yield) and 2) inflation expectations, given that precious metals are they consider the latter to guard against future inflation (in other words, given their scarcity, precious metals will always hold their value).

So as long as the economy continues to improve and inflation expectations continue to rise (as is likely to be the case with fiscal stimulus on the way and possibly more inflationary actions from the Fed) and as long as real US yields remain Deep in negative territory (as the Fed wants them to for the foreseeable future to aid the economic recovery), precious metals are likely to continue to support.

Key supports test

XAG / USD is testing the top of a range that has been flat since late September. The $ 26.00 region has proven to be formidable support in late August and early September and then resistance in early November, and the precious metal is struggling to break above this zone again now. If this attempt fails, a gradual pullback towards the support around $ 25.00 is likely to occur. If it breaks above, a gradual move towards the mid-September highs above the $ 27.00 to $ 27.60 level is likely.