Silver rose to $31.80 per troy ounce in mid-October, supported by falling Treasury yields and rising gold. Falling 10-year Treasury yields, driven by weak US manufacturing data, increased the appeal of non-yielding assets such as precious metals. Investors are also focused on upcoming US economic data, which could signal the Federal Reserve’s next move on interest rates.
Meanwhile, traders assessed China’s latest stimulus measures aimed at boosting its economy. In a weekend briefing led by Finance Minister Lan Foan, the government pledged increased lending to support the property sector, subsidies for low-income households, and additional capital for state banks, although details on the size of the package were minimal. The market has been expecting a significant fiscal stimulus, estimated at between 2 to 10 trillion yuan.
Silver prices continued to rise, marking the fifth consecutive day of gains, driven by a sharp drop in US government bond yields following the release of weak US economic data. As a direct result of the weaker-than-expected data, US government bond yields have fallen, with the 2-year yield sitting at 3.95% and the 10-year yield at 4.03%. Lower yields often make non-yielding assets like silver more attractive to investors, as the opportunity cost of holding these assets decreases. The fall in yields has provided strong support for silver prices, which have now reached $31.80 per troy ounce during the European trading session on Wednesday.
Adding to silver’s appeal is the market’s response to recent geopolitical developments. Investors are flocking to safe haven assets amid rising tensions in the Middle East. With ongoing conflicts, silver which is often considered a hedge asset has become the preferred choice for risk-averse investors.
Although silver has been supported by falling US yields, recent macroeconomic data suggests that the Federal Reserve may not ease its monetary policy as aggressively as previously anticipated. Strong US jobs data and inflation reports from last week have led to a recalibration of market expectations regarding future interest rate cuts. Currently, market consensus points to a total of 125 basis points in rate cuts over the next 12 months, with the CME FedWatch Tool reflecting a 94.1% probability of a rate cut of 25 basis points in November. However, there is no expectation of a more substantial cut of 50 basis points at this point.
The Fed’s measured approach towards rate cuts may dampen the bullish momentum in the precious metal a bit, but the combination of current geopolitical uncertainties and weakening US economic data seems to be enough to keep silver in a strong position for now.
From a technical perspective, XAGUSD is in bullish momentum above the 200-bar EMA. Silver prices are trading with a clear positive bias, having bounced off the $30.17 support last week. A continued rally is still projected for FE161.8% [$33.85] from $26.34 – $30.17 and $27.66 pullback. However, the resistance levels of $32.49/$32.93 could become a barrier. On the downside, a drop below $30.17 will carry bearish implications, although as long as the $30.17 support level holds, silver outlooks are still bullish.
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Ady Phangestu
Market Analyst
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