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  • Spot silver continues to move higher as USD and US government bond yields continue to come under pressure.
  • The precious metal is now eyeing a test of a key area of resistance around the $25.40 mark.

Spot silver (XAG/USD) is heading towards a key area of resistance around the $25.40 mark. This area coincides with the 12 and 22 March lows and the 24 March high as well as the 21-day moving average at $25.41. A break above this area, which remains elusive for now with XAG/USD currently still trading in the $25.00s, would open the door (technically speaking) to a move towards the 50-day moving average at just under $26.30. At present, silver trades with gains of about 1.5% or just under 40 cents on the session, having rallied to current levels from under the $25.00 level.

Driving the day

US government bond yields and the US dollar are both on the back foot on Tuesday. 10-year yields are down more than 5bps on the session to close to 1.66%, now more than 10bps below last week’s 1.77% highs. Meanwhile, the Dollar Index (DXY) has fallen back below its 200-day moving average at 92.45 and is now trading around the 92.40 level. Given silver’s historically negative correlation to both USD and bond yields, weakness in these two is helping to propel precious metals markets higher on Tuesday.

In terms of fundamental catalysts, there aren’t a great deal of fresh macro updates. Economic optimism is high, particularly surrounding recovery expectations in the US after the recent string of strong tier one data releases and now a bullish forecast from the IMF, hence why US equities continue to perform well with the S&P 500 etching out fresh all-time intra-day highs in recent trade. Note, the IMF released their latest World Economic Outlook on Tuesday and upgraded their global growth forecasts for 2021 pretty much across the board.

Some market participants are perplexed as to why all the above noted economic optimism, particularly with regards to the recovery in the US, is resulting in higher yields and a stronger US dollar this week. Indeed, over the past few weeks, increasingly optimistic growth expectations in the US have put upwards pressure on US yields, whilst an increasing divergence in expectations for US growth this year versus the likes of the EU and other major developed market peers has been supporting the US dollar. If this narrative is still alive, why are US yields and USD not still heading higher? asks some market participants.

Perhaps recent downside in both is a result of profit-taking after both yields and the dollar saw impressive gains in March. Perhaps this will be seen as an opportunity for the longer-term dollar and yield bulls to add to their long-term positions. If this turns out to be the case, this does not bode well for precious metals and the recent rebound in silver and gold could end up being little more than a dead cat bounce.