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  • Spot silver has been volatile over the last few hours, dropping from $25.00 to $24.40 and back again.
  • Selling pressure in precious metals markets seems to mostly be coming as a result of the gradual ongoing grind higher in USD.

Spot silver (XAG/USD) has been volatile over the last few hours of trade, dropping sharply from close to the $25.00 level to lows of just above $24.40 as US market participants arrived at their desks, before reversing aggressively back towards $25.00 again. However, silver has so far failed to reconquer the big figure. Spot silver’s 200-day moving average sits at roughly $24.60 and buying at this key level of resistance appears to have been a key driver of the recent reversal, rather than any fundamental developments/news.

As things stand, though now trading around the $25.00 level again, spot silver still trades lower on the session by about 0.5% or more than 10 cents. That means the precious metal is nursing losses of nearly 5.0% on the week. Short-term silver bears likely have their sights set on a test of annual lows around the $24.00 level, providing the 200DMA goes.  

Driving the day

Selling pressure in precious metals markets seems to mostly be coming as a result of the gradual ongoing grind higher in USD; having broken above the 92.00 level on Tuesday, the DXY continues to advance and has recently fallen back from fresh annual highs above the 92.70 mark, with the index now looking for a clean break to the north of its 200-day moving average. A clean break above this level could open the door to a (gradual) move higher to above October/November 2020 highs around 94.30, given a lack of notable levels of resistance in the interim. This would bode poorly for precious metals like gold.

Bond market price action appears to have taken a backseat in recent days in terms of its ability to dictate the action in precious metals markets. 10-year TIPS yields (the inflation expectation adjusted yield on the US 10-year bond) are down more than 10bps on the week to under -0.7%, in fitting with a broader pullback in yields (real and nominal) from recent highs. But this has failed to provide gold (down 0.3% on the week) or silver (down nearly 5.0% on the week) with much impetus – note that precious metals are typically negatively correlated to real yields.

The dollar has been advancing amid a more defensive tone to risk appetite this week, with markets fretting about rising Covid-19 cases and lockdown in Europe and other key emerging economies, as well as amid rising West versus China and Russia tensions (sanctions have been being thrown all over the place this week). While the global outlook has darkened, things still look pretty positive in the US, with the vaccine rollout going well and the economic recovery at the moment looking very much on track (survey data for the month of March has been very positive). Fed officials, whilst admitting there is a long way to go for a full economic recovery, are bullish on the US economy this year and some are even talking about hikes in 2022 and 2023. This narrative of optimism in the US but increasing pessimism abroad has been supporting the USD and, if it continues, this could hurt precious metals.