Silver Price Forecast: XAG/USD drops due to heightened global inflation as bond yields rise

Silver extends its losses below $19.00 as rising inflation justifies the need for higher interest rates.
Global bond yields climb, led by US Treasury yields, a headwind for silver.
US 10-year TIPS, a proxy for real yields, surpasses the 1.70% threshold.

Christian Borjon Valencia FXStreet

Silver price slid for the first time in the week following the release of UK, EU, and Canada inflation data, which remained stubbornly high, sparking a jump in global bond yields, a headwind for the precious metals segment, namely silver and gold. At the time of writing, the XAG/USD is trading at $18,42, below its opening price.

Inflation is the name of the game

In the European session, the Eurozone (EU) and the UK reported inflation, which remained stubbornly high, with the EU’s HICP for September jumping by 9.9% YoY, a tick lower than August’s reading, while UK CPI rose 10.1% YoY. Given the backdrop, market players are betting that the European Central Bank (ECB) and the Bank of England (BoE) would need to tighten further, probably 75 bps each, as they try to tame inflation.

Also, Canada added to the mix before Wall Street opened, with September’s inflation steadily hanging to the previous month’s readings, except for the core Consumer Price Index (CPI) on its monthly/annual readings, exceeding estimates by a tick.

Bond yields rally, pressuring precious metals

Worldwide bond yields jumped on data, with the US 10-year T-bond yield extending its gains above the 4.10% threshold, a headwind for silver, which appreciates as nominal and real yields fall. Speaking about the latter, the US 10-year TIPS bond rate, a proxy for real yields, keeps going north at 1.716%, up by ten bps.

Consequently, the greenback is printing gains. The US Dollar Index, a gauge of the buck’s value against a basket of peers, is back above the 113.00 figure, gaining close to 1%, propelled by US T-bond yields.

Elsewhere, the Minnesota Fed President Neil Kashkari reiterated that inflation is too high. Kashkari added that If the Federal funds rate (FFR) hits 4.5-4.75% and inflation remains high, he does not see the case for pausing interest-rate increases.

Silver (XAG/USD) Price Forecast

XAG/USD remains downward biased, although it recovered some ground and hurdled the $19.00 mark last Friday. Nevertheless, higher US bond yields mean a stronger US Dollar, so buyers could not hold to gains above $19.00 a troy ounce. Therefore, XAG/USD dropped below October’s 17 low of $18.55, opening the door for a test of the week’s low at $18.23. Once cleared, the next support would be the MTD low of $18.09.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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