XAG / USD targets a move above the $ 24.00 level as global bond yields plummet

• Silver (XAU) has recovered well since Wednesday’s sharp drop to $ 23.00, although it has not yet recovered $ 24.00.
• Precious metals are getting a boost from a sharp drop in global bond yields after the Bank of England’s dovish policy announcement on Thursday.

Silver prices (XAG / USD) have gained significant ground in recent trade and, having fallen as low as $ 23.00 / oz on Wednesday, they are now not far from trading in positive territory for the week at $ 23.80, though for now the precious price of the metal is struggling to Regain the $ 24.00 level. If the XAG / USD can break above $ 24.00, this would mean that prices have broken a recent negative trend since October 22. Any resulting technical buying could see XAG / USD continue higher towards the $ 24.50 level and perhaps even as high as $ 24.80, where a double top resides from September 3 and October 22.

Such a bullish move would depend on the continued decline in the global and US performance environment. For reference, much of Thursday’s rally in spot silver, which has seen prices rise from around $ 23.50, is due to a sharp drop in developed market bond yields in the wake of a policy announcement. the Bank of England much more moderate than expected; UK 2-year yields have fallen more than 30 basis points to below 0.50% from more than 0.7% before the policy announcement (the biggest one-day drop since March 2020), while yields to 10 years of the UK are down almost 15 basis points to less than 1.0%. .

This has caused yields in the US and elsewhere to decline; US 2-year yields are down about 6 basis points and have been testing the 0.40% level in recent trading, while 10-year yields have retreated from over 1.60% to the low of 1.55%. Real yields have also headed lower in the US (a good indicator that moderate central bank vibrations are driving bond yields lower), with the 10-year TIPS yield of it returned sharply to just over -1.05% from previously as high as -0.95%. The key point is that lower bond yields lower the opportunity cost of holding non-yielding precious metals like silver, increasing investor demand and raising their prices.

Solid data to boost returns again?

But the continued decline in global bond yields is far from guaranteed, and Friday’s US jobs report has the potential to screw things up. Yesterday, the Fed practically put its policy on autopilot for the remainder of 2021 with its announcement of QE phasing out of $ 15 billion / month for November and December, but essentially said uncertainty about the state of the economy (inflation and labor market) in 2022 is high. and so the bank is preparing for a variety of possible outcomes. That should be interpreted as the Fed saying they are “data dependent” and if the data warrants a radical change, they will become aggressive, while if it warrants a moderate change, they will be more patient with the removal of monetary policy stimulus. That makes upcoming data releases, like Friday’s jobs report, even more important.

If Friday’s data is strong (i.e. payroll number of 500,000, the biggest drop in the unemployment rate, and the further rise in wage growth rates), this will fuel optimism that full employment is not too far off ( a key condition the Fed says it wants to see before raising interest rates). That would likely see US bond yields supported in the short and long term (and probably globally). A retracement to 0.50% for the 2 years and 1.60% for the 10 years would not be good for silver, which, in this scenario, may fall back towards this week’s lows around $ 23.00 / oz.

Technical levels