Silver consolidating close to $25.00 ahead of next week’s key risk events

Spot silver prices (XAG/USD), which currently trade lower by about 0.2% but have been swinging between gains and losses on Friday, are consolidating close to the $25.00 level. To the downside, the 200-day moving average (which resides at $24.64) seems to be offering some support, ahead of weekly lows close to $24.40. Spot silver looks likely to close out the week with losses of just under $25.00.

Driving the day

Silver is seeing consolidative trade on the final trading day of the week, likely as a result of the mixed signals being given off by FX and bond markets. Starting with the former, USD’s upside momentum appears to have faded somewhat with the DXY stumbling back from annual highs set on Thursday around 92.90 amid a better market risk tone. The fact that the dollar is not continuing to grind higher takes some pressure off spot silver prices.

However, a sharp rising in US government bond yields at the end of the week seems to be preventing the precious metals from gaining any ground; 10-year are up more than 5bps on the day to above 1.65%. However, this rise in yields is being caused by a rise in inflation expectations; while nominal 10-year yields are up over 5bps, real 10-year yields (the 10-year TIPS) is down more than 1bps to around -0.7%. When the difference between real and nominal yields rises, that means bond buyers are demanding higher compensation for inflation, which implies higher inflation expectations. Indeed, 10-year break-evens (the difference between the real and nominal 10-year yield) have surged to 2.35%, its highest level since the start of 2014.  So whist higher nominal yields are typically precious metal negative, this is not the case when this is caused by inflation, given precious metals are seen as a hedge against inflation.

In terms of news and fundamentals developments on Friday, there has not been too much of note; US Core PCE inflation and Personal Income & Spending data for the month of February did not reveal anything too surprising (inflation is was still soft, but is still expected to pick up in the coming months, while income and spending dropped as the boost from the January stimulus cheque wore off and amid bad weather).

Looking ahead, next week will be a biggy, what with quarter-end flows to contend with in the first half of the week and then US ISM Manufacturing and official BLS jobs data for the month of March out in the second half of the week. This should give yields, the dollar and, by extension, precious metals like silver some direction.