Silver Price Downtrend to Continue as US Bond Yields Rise
The silver price has been under pressure in the past few weeks as investors assess the demand and supply dynamics and the US bond market. It is trading at $24.55, which is 17.8% below the highest point in February.
US Stimulus and Infrastructure
The silver price has been relatively muted even after the record US fiscal spending passed by Congress. In March, Joe Biden signed the $1.9 trillion stimulus package into law. The bill provided checks worth $1,400 to individuals in the country. It also provided billions of dollars to states and local governments.
The country is also eying another $3 trillion infrastructure package. While the plan has not yet been released, credible media organizations like Wall Street Journal (WSJ) and Bloomberg have written about it.
The bill will provide funds to rebuild US roads and bridges. It will also provide funds to clean energy products like solar panels. Therefore, analysts believe that the bill will be positive for silver because of its important role in solar energy. Also, it will help to boost the American economy. In most periods, the silver prices do well when the economy is booming.
However, a key challenge for the metal is that China, a leading buyer, is slowing its purchases. According to the Wall Street Journal, after buying a substantial amount of commodities in 2020 as part of its stimulus, the country has started slowing down these purchases.
Silver and bond yields
The silver price has also struggled because of the performance of the US bond market. In the past few months, bond yields in the US have surged to the highest level in more than 14 months. The yields on the ten-year bonds have risen to 1.70%, while that of the 30-year has been increased to 2.40%.
This performance is mostly because analysts and investors believe that inflation will surge. Larry Summers, the former Treasury Secretary, has forecasted that inflation could rise to 4%. Ken Griffin, the billionaire founder of Citadel Securities, also expects that inflation will increase to more than 3%.
To deal with high inflation, central banks use high interest rates. Indeed, some emerging market central banks have already started hiking rates.
The impact of high interest rates in the United States is on the stronger US dollar. Indeed, the dollar index has risen for the past three consecutive months. It has risen by more than 3% this year, partially offsetting some of the losses made last year.
The US dollar has an inverse relationship to silver prices. In most periods, a stronger dollar tends to lead to lower silver and gold prices. Indeed, the latter has fallen by more than 12% this year. Therefore, if the dollar strength continues, the price of silver could continue falling. The chart below shows the inverse relationship between the dollar index and silver prices.
Dollar index vs. silver prices
Silver price analysis
The daily chart shows that the silver price has been falling recently. The metal is trading at $24.56, which is substantially below the year-to-date high of $30. The price is along the lower line of the Bollinger Bands. The Supertrend indicator also points to more weakness of the metal. The Relative Strength Index (RSI) has also continued dropping. Therefore, the price of silver will keep falling as bears target the next key support at $23 or even $20.