Silver sees choppy trade as markets await Fed Chair Powell and Biden

• Spot silver has seen significant volatility in recent trade, though no fundamental news has caused this.
• Prices are up despite a stronger USD and was unaffected by underwhelming US jobless claims data.
• Market focus now turns to Fed Chair Powell and Biden’s fiscal stimulus announcement.

Spot silver (XAG/USD) prices have seen significant upside in recent trade, though no specific headline, news or theme can be pointed at to explain the sudden move. Perhaps a “fat finger” was in play. Spot prices spiked from around $25.40 to highs above $25.70 over the course of a few minutes but are now paring back towards $25.50. On the day, the meta trades with gains of just under 1.5% (just over 30 cents), despite a broadly stronger US dollar that has shrugged off underwhelming US weekly jobless claims numbers.

Driving the day

Precious metal markets have a subdued feel on Thursday, which is understandable given incoming key risk events. Firstly, the Chairman of the US Federal Reserve Jerome Powell will speak at 17:30GMT. The hot topic at the moment with regards to the Fed has been whether or not the recent build-up in inflation expectations (that saw 10-year break-evens rally above 2% in recent weeks) might spur talk at the Fed of a potential tapering of their asset purchase programme in the coming months. So far, all but a few fringe members of the FOMC have pushed back on the idea that the Fed will be thinking about reducing the size of its monthly purchases any time soon, with most suggesting the current pace of purchases ($120B per month) will continue until at least the end of the year and that the Fed would need to see substantial further progress on towards their mandate before tapering. Such dovish commentary has eased fears of premature tapering, which had helped to propel the recent rise in real and nominal US bond yields, both of which are now off highs. Markets expect Powell to reiterate a similar sentiment.

Meanwhile, during the early hours of Friday Asia Pacific trade, incoming US President Joe Biden will give details on his fiscal stimulus plans. CNN reported during Thursday Asia Pacific hours that he would unveil a larger than expected $2.0T bill, which another report said will include significant child benefit spending. However, separate reports allege that Biden will look to make a deal with the Republicans (indeed, he will need 60 votes in the Senate to pass his bill), rather than trying to force something through that they do not like. The Republicans are highly unlikely to support a $2T package, but markets are likely to still be quite sensitive to the announcement.

Should Fed Chair Powell stick to the dovish tone set by other FOMC members as of late, this is likely to be a positive for precious metals like silver given that it might put downwards pressure on US yields and upwards pressure on inflation expectations (i.e. a more dovish Fed will be expected to generate more inflation). Any post-Powell gains may well fade in the event that Biden sends US bond yields higher, however.

XAG/USD key levels