Silver prices rally to weekly highs above $24.50 as real yields slide

  • US 10-year bond real yields are back below -1.0% giving a boost to precious metal markets.
  • Spot silver has subsequently rallied as high as the $24.50 level from below $24.00 on Monday.

Spot silver (XAG/USD) has traded on the front foot thus far on Tuesday, with prices currently trading close to highs of the day at just above $24.50. At present, XAG/USD trades with gains of around 60 cents or over 2.5% on the day.  

Falling real yields keeping precious metals supported

After rallying to nearly -0.95% on Monday, the yield on the US 10-year TIPS has slumped back to -1.0% and currently sits close to lows since mid-September. For context, falling US real yields (since the start of the year the US 10-year TIPS yields has dropped from roughly 0.0% to current levels at around -1.0%) have been identified as a key driver of precious metals; the lower the real rate of return on investments in bonds, the more comparatively attractive it is to invest in non-yielding precious metals.

Compounding the benefits for precious metals, the move lower in real-yields on Tuesday is being driven by rising inflation expectations, not by falling nominal yields; the US 10-year breakeven inflation rate has risen back towards monthly highs close to 1.88% (implying expectations are for CPI to average 1.88% over the coming 10 years), a more than 3bps rise since last Friday. This appeals to the safe-haven property carried by precious metals that they are a hedge against future inflation. Should inflation expectations continue to rise and real-yields continue to fall in 2021, precious metals ought to remain supported.

Silver eyes break of key long-term downtrend

XAG/USD is currently probing a key downtrend that links the 7 August, 11 September, 9 November and 8 December highs, which seems to have come into play around the $24.50 mark. Should this level go, that would open the door for a test of the monthly high in the $24.80s and, beyond that, a break above the $25.00 level and a move towards the $26.00 which coincides with the November high.

XAG/USD daily chart

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