Silver slides back below $26.00 as retail pump loses momentum

• Spot silver prices (XAG/USD) have lost some of their earlier momentum over the last few hours.
• Speculation that retail traders might attempt to force a short-squeeze has petered out.
• XAG/USD is back below the $26.00 level, but still substantially higher on the day.

Spot silver prices (XAG/USD) have lost some of their earlier momentum over the last few hours. Shortly before the start of US trading hour, stock prices surged from around $25.30 to three-week highs at just shy of the $27.00 level. Upside was seemingly driven at the time by speculation that retail traders who have spent the last few weeks pumping small-cap stocks such as of GameStop but were having their ability to do so restricted, would turn their focus to silver, after a post urging the retail community to do so on popular retail investing subreddit WallStreetBets urging investors to do so went viral. iShares Silver Trust, a popular Silver ETF and a number of silver mining stocks saw significant upside as well.

However, as the US session has progressed, spot prices have eased back as the speculation that retail traders might attempt to force a precious metal short-squeeze petered out. XAG/USD is now back below the $26.00 level and trading around the same levels its was trading at this time last week. On the day, spot silver is still nearly 3% higher, however.

Bond market signals a positive

Though Thursday’s silver price action may have felt somewhat divorced from reality/actual fundamentals, some precious metal upside is likely warranted given positive signals from the US bond market; US real yields, for the most part, moved lower, with the 5-year TIPS yields dropping to fresh all-time lows beneath -1.80%. As a reminder, when real yields fall that is generally a positive for precious metals. Meanwhile, rising nominal yields have driven a rise in inflation expectations; 10-year break-evens jumped 6bps to back above 2.11% on Thursday and 30-year break-evens rose an even sharper 7bps, also to back above 2.11%. Precious metals are seen as the ultimate hedge against inflation, hence higher inflation expectations ought to be offering the complex some support.