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  • Silver has recovered back above the $24.50 mark and is heading back to its 200DMA around $24.78.
  • Falling US government bond yields have been the main driver of higher precious metal prices on Thursday.

Spot silver prices (XAG/USD) have been on the front foot since the start of European trade, with prices recently surpassing the $24.50 mark and eyeing a test of the 200-day moving average at $24.78. If spot prices do manage to surpass the 200DMA, this would open the door to a run at resistance in the form of the psychologically important $25.00 level and then perhaps on to the $25.50 mark, around which resides the 21DMA and 12 and 22 March lows.

The precious metal is currently trading in the $24.60s, up over 60 cents or more than 2.5% on the session. Spot silver markets are making solid gains in tandem with the strong performance being seen across precious metals markets (XAU/USD is up 2.3%, XPD/USD is up 0.8% and XPT/USD is up 1.3%).

Driving the day

Precious metal markets saw a very minimal reaction to the latest ISM Manufacturing PMI survey for the month of March. For reference; the headline index came in at 64.7 versus consensus forecasts for a rise to 61.3 in March from 60.8 in February. In terms of the subindices, New Orders rose to 68.0 from 64.8 in February, Employment rose to 59.6 from 54.4 (above the expected 53.0) and Prices dropped ever so slightly to 85.6 from 86.0 (a little above the expected 85.0). The strong employment subindex is a positive sign for NFP on Friday. Other data of note on Thursday include a slightly worse than expected US weekly jobless claims update (initial claims rose back above 700K to 719K).

The main driver of higher precious metals prices on Thursday has been a pullback in US government bond yields; 10-year yields have slipped back below the 1.70% mark, having failed to break out convincingly after hitting fresh cycle highs above 1.77% earlier in the week. As a reminder, non-yielding safe-haven assets like silver and gold have a negative correlation to fixed income assets, particularly US government bonds (given how large of a percentage US government debt makes up out of the world’s total government debt pool) – when the yields on US government debt rise, this makes buying them comparatively more attractive than leaving money in assets such as silver that do not yield anything.

The pullback in US government bond yields also appears to be having a negative impact on the US dollar, though for now the DXY is managing to hold above the 93.00 level. A break below this area of support could see a more meaningful pullback towards the 200DMA at just above 92.50. This of course would be good for dollar-denominated precious metals such as silver and gold. However, for the dollar to fall that much, bond yields will likely have to continue to drop and with US data this week for the most part showing that the US economy remains on track, a more meaningful pullback in yields at this point seems unlikely (that means dollar should stay relatively well supported and precious metals under pressure).

On which note, the March US labour market report is out on Friday, despite the fact that US (and European) markets will be closed for the Good Friday public holiday. Conditions will be thin and markets are, as a result, likely to be hypersensitive to the data. If the data comes out significantly stronger than expected (say 1M jobs were added versus expectations for 650K), this would likely result in some minor hawkish repricing of money market expectations for Fed hikes, which would be negative for silver. Conversely, bad data would likely be precious metal positive.