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  • Silver has slipped below $27.00 and the 21DMA, as bears eye last week’s low and the 50DMA at $26.50.
  • A firmer dollar has weighed on silver prices and markets ignored the latest US inflation numbers.

Spot silver (XAG/USD) prices have slipped below their 21-day moving average, which currently resides just above $27.30, and below the psychological $27.00 mark on the final trading day of the week and month. At present, the precious metal trades with losses of over 2.0% or more than 60 cents on the day, having dropped from Asia Pacific session highs above $27.50 to current levels in the $26.80s.

Spot prices are now over 1.5% below their 21DMA, the biggest drop below this key indicator of momentum so far this month. Indeed, prior to Friday’s session, the 21-day moving average had offered solid support.

But before the bears get too excited, a big area of support resides to the downside in the form of last week’s lost and the 50DMA which both reside pretty much bang on the $26.50 mark. Friday’s price action, for now, shows Silver dip buyers active ahead of this area of support, with spot silver prices posting session lows at $26.60. A break below this level would open the door to a move back towards the monthly low at just below $26.00.

Dollar, yields in focus

After yesterday’s massive upside surge, US bond yields are pulling back quite sharply on Friday. Bond yield downside is most pronounced at the long end, with 30-year yields down 10bps on the day to around 2.20%, while 10-year yields are down 4bps to back below 1.50%. Bond yields are still sharply higher on the week (and month), however, with Friday’s move more of a technical correction than anything else.

Downside in bond yields has not stopped the US dollar from finding buyers; the Dollar Index has advanced from the low 90.00s during Asia Pacific trade to back above the 90.50 mark. This seems to be pressuring precious metals markets, which would otherwise likely have received some respite from falling yields.

US inflation and personal income and spending data was in focus on Friday. Starting with the former, Core PCE (the Fed’s favoured gauge of inflation) came in hotter than expected in January, rising to 1.5% YoY from 1.4% versus expectations that it would remain unchanged (the MoM metric was also a little hotter than anticipated). Meanwhile, thanks to the $600 stimulus cheques sent out in January from the US government to each adult American, Personal Income was up 10% MoM (more than the expected 9.5% MoM rise) and Personal Spending was up 2.4%.

Markets largely ignored the data; the US dollar, bond yields and precious metal markets hardly showed any reaction, opting to instead take a breather after Thursday’s outsized moves. However, ING caution that inflation is likely to see further upside in the months ahead and forecast “inflation moving above 3.5% YoY before moving slowly lower in 2H21”. While the Fed has indicated that they will look through any “transitory” rises in inflation which are as a result of base effects, ING thinks that “there is the risk it proves to be somewhat sticky, which to us means the Federal Reserve will be forced into an earlier first-rate hike than the early 2024 date they are currently indicating”. If this scenario was to come into fruition, this would be great for higher bond yields and not good for precious metals. 

 

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