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Silver Hits Three Week High, Future Outlook Remains Mixed

Silver Hits Three Week High, Future Outlook Remains Mixed

Izaac Brook,

Silver Talking Points:

  • Silver hit a fresh three week high above the 25.80 level.
  • The metal had hit its lowest point since December at the end of March, around the 24.00 level.
  • Overall, precious metals have struggled in 2021 as US yields have moved higher.
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Silver Hits Three Week High, Future Outlook Remains Mixed

Since hitting a multi-month low around the 24.00 level at the end of March, Silver has been attempting to stage a rebound. The precious metal briefly rose above the 25.50 level on April 8th before meeting resistance and dropping lower. The metal is rallying again following strong retail sales and jobless claims numbers from the US, breaking back above the 25.50 level to an intraday high above 25.80. This level is Silver’s highest point since March 22nd, marking a three week high for the precious metal.

Silver (XAG/USD) Price Chart – 45 Minute Time Frame (March – April 2021)

Silver, XAG, XAGUSD, TradingView

Chart Created by Izaac Brook, Source: TradingView

Silver might be seeing a resurgence in strength recently given continued inflationary worries. March CPI inflation printed ahead of estimates, and base effects driven by the low readouts from last spring will see higher inflation prints in the coming months.

The strength seen from Silver following these strong data prints also relates to the reaction from bond markets. Following the March retail sales print, the 10yr yield dropped back below the 1.60% and hit its lowest point since mid-March. This move was also likely driven by the decline in initial jobless claims to a pandemic low.

While one would reason that continued strong economic data would improve risk sentiment and drive further selloffs from US Treasuries, these strong data points might also indicate that Biden’s infrastructure bill will be less likely to succeed. The bond market may be pricing in less supply than previously anticipated and yields may be reacting by moving back lower.

Silver (XAG/USD) vs. US 10YR Yields – 4 Hour Time Frame (March 2020 – April 2021)

Silver, XAG, US 10yr Yields, US Yields, Silver and Yields, TradingView

Chart Created by Izaac Brook, Source: TradingView

Since the new year, precious metals have struggled to cope with the rise in US yields. After the Senate runoffs in early January, the 10yr Treasury yield rose from 0.90% to a high above 1.70% in March. This rise in real yields poses a threat to non-yielding assets like Silver.

Silver was knocked lower in late February as sharp moves in yields induced greater market volatility. Since then, Silver and the 10yr yield have been closely correlated. The multi-month low for Silver in late March marked the pandemic high in 10yr yields. This rise in yields has so far stalled out in April, with yields dropping below the 1.60% level following the March retail sales print.

A continued decline in longer-term yields could provide a boost to Silver and other precious metals. However, upcoming economic data is expected to be strong as US vaccinations continue and the economic reopening gathers more steam. As the economic recovery progresses, the Federal Reserve will eventually look to taper bond purchases, providing another case for rates moving higher. While the future path of US yields depends on a number of factors, the longer-term trend seems more likely to be another leg higher, posing a threat to non-yielding assets like Silver.

--- Written by Izaac Brook, DailyFX Research Intern

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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