Silver bulls eye move back towards $28.00 level ahead of Powell on Wednesday

Spot silver prices (XAG/USD) has recently pushed to session highs in the $27.70s, having previously remained supported above the $27.30 mark for most of the session thus far. Silver bulls are likely eyeing a move back towards last week’s highs at just shy of the $28.00 level, a break above which would open the door to a clear run (technically speaking) towards annual highs at just above $30.00, these peaks having been hit at the height of retail investor speculation into precious metals markets.

Driving the day

Flat US real yields (the US 10-year TIPS yield trades flat compared to Friday’s close at just under -0.8%) and a weaker US dollar (the Dollar Index, or DXY, has reversed from an early European morning session run back above 90.50 to trade back at session lows in the 90.20s) is keeping a bid under precious metals markets on the first trading day of the week. US real yields are still significantly higher than they were at the start of last week, however, and it seems likely that the recent run to the upside could have more legs; most analysts on Wall Street are forecasting further upside amid the rollout of vaccines and subsequent economic reopening and on the prospect for more US fiscal stimulus.

In that context, traders will be monitoring comments from Fed Chairman Jerome Powell later this week, who testifies before Congress on Wednesday at 15:00GMT (though his speech will be released the day before). Last week, influential FOMC member and NY Fed President John Williams said that the recent rise in yields was not a concern and reflected positive fundamental developments. If Powell offers the same opinion, this could be seen as a green light to further upside in bond yields. Alternatively, some think the Fed might seek to “jawbone” yields down, perhaps via the threat of a potential tweak to the weighted average maturity of the bank’s QE purchases (i.e. buying more long bonds to keep their yields in check).

In terms of what this all means for precious metals markets; higher yields is likely to be a negative and lower yields are likely to be a positive, so in essence, the more dovish the Fed comes across this week, the better for the likes of silver. Note that precious metal traders also have one eye on inflation expectations, however. Commodity prices (oil, copper, Iron ore) all moved higher on the first trading day of the week, adding further momentum to expectations for higher rates of inflation ahead. Note that US 10-year break-even inflation expectations had dropped back to 2.13% on Monday from highs last week of above 2.2%. If the Fed does combine jawboning on QE with its usual dovish, this is likely to boost inflation expectations via exerting downwards pressure on real bond yields, which would likely be a positive for precious metals.