Silver slips back under $28.00 as global bond yields surge

Spot silver (XAG/USD) prices have slipped to session lows in recent trade, having double topped at the $28.20 mark during Asia Pacific/early European trade. The precious metal weighed by global bond yields, which are shooting higher, though the downside would be much worse was it not for a much weaker USD on the day. At present, XAG/USD is trading just above session lows in the $27.70s, having found some support ahead of $27.50. To the downside, technicians will be eyeing support in the $27.20s in the form of the weekly lows and the 21-day moving average, which resides at $27.236.

Driving the day

Bond yields continue to rocket higher globally and this continues to have a negative impact on precious metals markets. US 10-year yields have surged another nearly 8bps on Thursday (a move that seems small compared to some other countries, such as the bond yield moves in Canada and Australia). Of particular importance for precious metals such as silver and gold, the move is not only confined to nominal yields; the US 10-year TIPS yield has surged more than 10bps on Thursday to above -0.70% for the first time since the start of July 2020. For reference, the last time the real yield on the US 10-year was this high, XAG/USD was trading closer to $18.00 per troy ounce.

US data (Weekly Jobless Claims numbers and Durable Goods Orders were better than expected) has for the most part been ignored by markets, as has dovish Fed speak from FOMC member Esther George. Fundamental catalysts have otherwise been light and the news really has been moves in global bond markets.  

Elsewhere, note that renewed retail interest in GameStop shares, which are up another 50% on the day to around $130 per share is raising the prospect of a renewed retail push into silver, which at the start of February sent XAG/USD to fresh multi-year highs above $30.00. There is no sign of massive retail interest just yet, but if history continues to repeat itself, traders should be on the lookout.  

Positive outlook for Industrial Usage

Silver has been outperforming gold in recent weeks and analysts are chalking this up to the fact that a greater percentage of demand for silver comes from the industrial/manufacturing sector than is the case for gold. As Goldman Sachs puts it, “silver has been outperforming gold in line with the recovery in global industrial output”.

The outlook for silver industrial demand is strong, with the Silver Institute is forecasting industrial demand to rise by 9% this year to a four-year high of 510M troy ounces, with the demand led by the electrical and electronics sectors. Moreover, adds the Silver Institute, the precious metal’s usage via electronics in 5G technology is expected to rise by 7% this year.

Analysts also note that silver also stands to benefit from any shift towards greater production of solar panels in the next few years, with the US having recommitted to the Paris Climate accord and aiming for carbon neutrality by 2050, while China has committed to carbon neutrality by 2060. According to Macquarie, though U.S. politics might diminish President Biden's grandiose green infrastructure plans but “there is clear potential for upside risk on renewable investments on a five-year view”.