Silver falls back toward the $ 25.50 level as USD and bond yields strengthen

• Spot silver has fallen back toward the $ 25.50 level in recent hours, pressured by rising US bond yields.
• Market analysts attribute US fiscal optimism as the main driver of the move.

Markets spot silver (XAG / USD) have been under selling pressure mostly since the start of the trading session on Friday, with the precious metal falling from above the $ 26.00 level at the start of the Asian session to below the $ 25.50 level during the American session.

The driving force behind the movement has been a typically bearish combination of strength in US government bond yields and the US dollar. Overnight, and apparently despite the lack of new fundamental catalysts, the yields of US government bonds began to rebound, with the 10-year yield now rising more than 8.5 basis points on the day from a low of 1.50% to above the 1.60% level. This has pushed the US dollar higher, with the DXY dollar index back at the 91.90 level and pointing to a test of the 92.00 level from Thursday’s lows in the 91.30 region.

Market analysts attribute the rise in US government bond yields to 1) the fact that US President Joe Biden signed his “bailout” package on Thursday of stimulus of 1.9 trillion dollars, providing a strong boost to the short-term outlook for the US economy and 2) amid heightened rumors about the upcoming US fiscal stimulus package, which will focus much more on rejuvenating the country’s infrastructure and it could be priced well above the bill that just passed.

As well as $ 1.9 trillion package boosts short-term outlook, a multibillion-dollar infrastructure package, likely to invest over the course of the next four years, would provide a major boost to the longer-term outlook for the US growth path A key question among market participants at the moment is whether this will lead to overheating of the economy and tighten Fed policy earlier than is currently estimated in the markets. The higher these fears, the higher the yields and the US dollar. This, of course, would be bad for silver and gold.

In terms of key developments to highlight on Friday, the report from US PPI producer price inflation for February does not appear to have left a lasting impact on the marketBut it will certainly fuel the “inflation” narrative that has been driving up government bond yields. The general PPI showed a year-on-year growth rate of 2.8%, slightly above expectations of a jump from 1.7% to 2.7%. Much of this increase is due to underlying effects, namely the weakness in producer prices at this time last year when the US economy was stalled by the first wave of Covid-19. The question is whether all the fiscal and monetary stimulus will translate into higher inflation rates over a longer period of time.

Silver technical levels