- Spot silver has been firmly on the defensive in recent trade, dropping below the 200 DMA and towards $ 24.00.
- Rising US government bond yields and a stronger US dollar are weighing on the precious metal markets.
Silver Spot Prices (XAG / USD) have tumbled in recent trading, and precious metals lost their grip on the 200-day moving average (currently at $ 24.71) and fell sharply towards the $ 24.00 level. Currently, the XAU / USD is trading with heavy losses of around 2.5% or losing roughly 60 cents on the day. A test of yearly lows at $ 24.01 looks imminent and a break below this level would technically open the door for a pullback towards the Q4 2020 lows around $ 22.00.
Performance of the day
A sharp rise in US government bond yields on Tuesday, apparently in anticipation of US President Joe Biden’s announcement of the infrastructure bill on Wednesday, is putting pressure on US markets. precious metals. Real and nominal returns have increased; 10-year nominal yields hit new post-pandemic highs at 1.77% on Tuesday, but have since fallen below 1.75%, while 10-year TIPS yields (the inflation-adjusted return on the bond to 10 years) are closer to 9bp. and now it is trading around -0.60%. As a reminder, precious metals are negatively correlated with actual returns.
Elsewhere, and without helping dollar-priced precious metals like XAG / USD and XAU / USD, the US dollar is trading firmly on Tuesday; The dollar index (DXY) rose above 93.00 at the start of European trading and has since risen to 93.30 (a rally of almost 40 points on the day). The rally in yields is helping and so is the build-up of expectations that Biden’s infrastructure spending packages will fuel US economic growth in the years ahead, with aggressive implications (relative to other major central banks) for Fed policy and US interest rates.
Looking ahead, a risk to the short-term US economic outlook is if the recent surge in Covid-19 cases in the country turns into something worse as it has happened in Europe in recent months and gives lead to lockdown restrictions in some states. This could potentially affect growth expectations for 2021, but the hope is that any third wave of Covid-19 cases in the US won’t be too bad, given that the majority of the country’s most vulnerable population is now vaccinated. . Either way, setbacks in growth expectations could send yields down a bit and this is unlikely to be good for the USD, although to be fair, the USD could generate safe haven demand that could reduce losses. potentials.
Either way, a third wave would probably be good for silver (and gold). But given that 1) this scenario still seems like an unlikely prospect, 2) the US data is likely to show continued recovery, 3) the vaccine launch is likely to continue to perform well, and 4) that hopes Stimulus spending on infrastructure continues to increase risks to the USD and US bond yields appear to be tilted higher.
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