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  • XAG/USD is higher on Tuesday and back above the $25.00 level, amid a softer USD and lower yields.
  • Fundamental catalysts have been light, with the IMF’s upbeat new global economic forecasts the main story of the day.

Spot silver (XAG/USD) is on the front foot this Tuesday, with the precious metal having now recovered back to the north of the $25.00 level and looking to rally on towards its 21-day moving average at just above the $25.40 mark. The $25.40 area is a key zone of resistance, with it also acting as lows on 12 and 22 March and a the high on 24 March. Continues softness in the US dollar and falling US government bond yields (10-year yields are down just over 3bps on the session to back under 1.70% again) are the main factors supporting precious metals. On the day, XAG/USD is higher by about 30 cents or around 1.2%.

Driving the day

It’s been a pretty quiet session so far in terms of fresh fundamental catalysts; there haven’t been any tier one or even tier two data releases in the US or out of the Eurozone. The main update from an economic standpoint is likely the IMF’s updated World Economic Outlook; the group raised its global growth outlook to 6.0% in 2021 from 5.5% in its previous January outlook, whilst also raising its 2022 growth outlook to 4.4% from 4.2% in January. This would mark the strongest pace of global growth since 1976 and is being led by a strong rebound in the US. Indeed, the IMF raised its growth outlook for the US economy to 6.4% from 5.1% previously, the fastest pace of growth seen in the US since the 1980s. The IMF noted that the multispeed recovery being seen across economies reflects the differing pace of vaccine rollouts and cautioned that there is still a high degree of uncertainty to the economic outlook, with much depending on the success of Covid-19 vaccine rollouts.

As far as precious metals markets are concerned, the high global economic growth environment that the global economy currently finds itself in, setting aside near-term difficulties to do with the recent resurgence in Covid-19 cases in a number of key economies (like India, Brazil and the EU), is not a great environment. Having seen a steep recession in 2020 as a result of the first wave of Covid-19 infections, the global economy is still at the start of its growth cycle. That means global central bank dovishness has likely peaked (for now) and global government bond yields are likely to be on a one-way march higher, a negative for non-yielding precious metals (which become a less attractive asset to hold as yields go up). Moreover, with the US currently leading the global economic rebound and expected to continue to do so into 2022, this bodes well for the US dollar and hence bodes poorly for precious metals such as gold and silver which 1) typically have a negative correlation to USD and 2) are denominated in USD, so when USD appreciates, they become more expensive to international buyers.

Elsewhere, momentum appears to be building towards an OECD/G20 agreement on a global minimum corporate tax rate. The US, which is looking to increase the corporation tax rate domestically and is keen not to give away too much of a competitive advantage, is keenly pushing for an agreement and major European countries (France and Germany) appear to be on board. The current move towards higher corporate taxes is of course a negative for equities, but the strong growth global growth environment highlighted by the IMF earlier in the session appears to be counteracting any negativity to do with taxes; global equities continue to trade close to recent (or all-time) highs – buoyant risk appetite is not helpful for safe-haven assets such as gold and silver.