- Spot silver failed to reclaim the $27.50 level during Asia Pacific trade and has dropped back towards $27.00.
- Rising US bond yields, real and nominal, have exerted downward pressure on precious metal markets.
Spot silver prices (XAG/USD) trade in the red on Thursday, despite broad US dollar weakness (which would normally be a positive for precious metals such as silver). Spot prices managed to rally momentarily to the north of the $27.50 mark during the Asia Pacific session, but have subsequently been on the back foot, driven lower primarily by a resumption of the recent upwards move seen in US government bond yields.
To the downside, silver traders will be on the lookout for a test of the psychological $27.00 level, as well as a test of an uptrend linking the 10, 11, 16 and 17 February lows, which is likely to come into play around the $26.90 mark. Below that, the significant area of support is around the 10 February low at close to $26.70, which coincides with spot silver’s 21-day moving average at $26.73.
Driving the day
Silver markets have not seen much of a reaction to a mixed batch of US data released at 13:30GMT. For reference, Housing data for January was mixed, with Housing Starts beating and Building Permits missing consensus. Weekly Initial Jobless Claims (for the week ending on 13 February) was disappointing, coming in at 861K versus forecasts for a 765K and the prior week’s number was revised higher by over 50K to 848K. The Philadelphia Fed Manufacturing survey taken this February was strong (as was the NY Empire State survey earlier in the week), boding well for Friday’s preliminary February Markit PMI survey report. Finally, Export and Import Price numbers showed much higher than expected trade price growth in the month of January.
Net-net, Thursday’s data show that while the labour market’s struggles look to have continued into February, the recovery continues (hence the strong manufacturing survey and trade price data). Weak labour market data might be used as justification by fiscal doves as to the need to “act big” with regards to further stimulus (in other words, calling for the implementation of US President Joe Biden’s full $1.9T “rescue package”), but the data ought not to impact the outlook for US fiscal or monetary policy too greatly.
In terms of what has been driving silver price action or more specifically silver weakness, on Thursday; US bond yields are back on an upwards trajectory and the treasury curve is seeing some steepening. The 10-year yields are up just over 1bps and is back above 1.31% while the 30-year yield is up just shy of 3bps on the day and close to 2.1%. Crucially (and somewhat bearishly) for precious metals, this move is being driven by a move higher in US real yields; the US 10-year and 30-year TIPS yields are both up about 1bps on the day, the former now above -0.91% and the latter to above -0.08%. Higher real yields tend to be bearish for non-yielding precious metals markets.
Looking ahead, spot silver markets will be focused on FOMC speakers on Thursday and Friday in wake of the release of very dovish minutes on Wednesday. Meanwhile, preliminary Markit PMI surveys for the month of February will be released for major economies across the globe on Friday, with particular attention set to be paid to the European and US surveys. Anything that provokes further upside in bond yields could weigh on silver (and gold).
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