Silver steadies below $27.00 as markets await US ISM manufacturing survey release

Spot silver prices (XAG/USD) have flatlined in recent trade, with the price action, for the most part, contained with $26.80-$2700 parameters as precious metals trades eye developments in bond and FX markets. For reference, the US Dollar Index (DXY) has rallied back to, but failed to advance beyond the 91.00 level, boosted by weakness in the euro and yen amid both of those currencies central bank’s taking a more dovish approach to the recent rise in bond yields and signaling, or at least being close to signal, their readiness to increase the pace of bond buying. The stronger US dollar seems to be preventing XAG/USD from rallying to the north of the $27.00 level, but amid a further pullback in global bond yields, the precious metal is still having a decent day and is up around 0.8% or about 20 cents.

Indeed, bond market price action seems to have been the main driver of silver (and gold) markets in recent days; XAG/USD dipped as low as the $26.10s as recently as last Friday, coinciding with US 10-year TIPS yields (the real yield on the US 10-year) surging to multi-month highs above -0.6%, only to recover back towards $27.00 amid a pullback in real yields that has seen the 10-year TIPS drop back to around -0.75%. On the day, real yields are flat, but nominal yields are down with the 10-year yield down around 3bps on the day to 1.43%. That means inflation expectations have picked up; 10-year break-evens are heading back towards 2.20% having hit lows around 2.11% last Thursday. Note that a pick-up in inflation expectations is typically positive for precious metals such as silver and gold, both of which are seen as hedges against inflation.

Looking ahead, silver (and gold) traders will be on the lookout for the release of the latest US ISM Manufacturing PMI survey at 15:00GMT, which will provide a timely update as to the health of the US manufacturing sector in February; some desks think that the survey may disappoint given the negative short-term impact of recent cold weather in the South of the US, as well as amid the ongoing semiconductor chip shortage. Any miss on headline expectations as a result of the above-noted factors are unlikely to dent risk appetite too significantly as markets will look through short-term weakness in favour of broader positive trends such as 1) the US vaccine rollout, 2) falling US Covid-19 infections rates and economic reopening and 3) the boost from more US fiscal stimulus. Still, USD, bond market and by virtue silver markets could be a little choppy on the data.