Silver prices sour above $25.00 amid dovish Powell and technical buying

Spot silver (XAG/USD) prices ended Wednesday FX trade with gains in excess of 80 cents over nearly 3.5%, its best daily performance since 1 December, boosted by a dovish tone to Fed Chair Jerome Powell’s remarks in the post-FOMC rate decision press conference as well as technical buying. The precious metal nearly managed to make it as high as the $25.50 level, but has slipped back to the $25.30s in recent trade.

Precious metals boosted by dovish Fed, low real yields, rising inflation expectations

A combination of intertwining fundamental factors continue to act in support of precious metal markets; US 10-year TIPS yields (the real yield on the US 10-year treasury) dropped as low as -1.03% on Wednesday in the aftermath of the FOMC, its lowest level since early September. The drop in real yields was driven (again) by a further jump in inflation expectations that saw the 10-year breakevens (market expectations for CPI over the next 10 years) rise to highs of 1.9159%, its highest level since April 2019. Inflation expectations continue to rise as Congressional leaders seemingly get closer to clinching a deal on further Covid-19 aid.

For reference, falling real yields raise the comparative attractiveness of holding precious metals compared to treasuries (bullish for silver), while precious metals are also seen as a hedge against inflation (hence rising inflation expectations are also bullish). Hence, the above developments in both outlined above were bullish for silver.

Powell was keen to emphasise that the FOMC’s ultra-accommodative policy stance is not going anywhere any time soon, and emphasised that if needed, the FOMC could deliver more stimulus (via increasing the pace of asset purchases or adjusting the weighted average maturity of purchases, he hinted). In other words, the Fed is not going to allow a significant rise in real yields anytime soon, confirmation of which seems to have given silver a boost. Indeed, the risk (if any) is tilted towards them buying more bonds (and putting more pressure on real yields), rather than less, as Powell was at pains to make clear.

XAG/USD technical buying also helping

Spot silver convincingly broke above a long-term downtrend on Wednesday that links the 7 August, 1 September, 9 November and 8 December highs. To the upside, the next are of significant resistance to watch is the 9 November high just before the psychological $26.00 level.

XAG/USD daily chart