• Spot silver is back above the $27.50 mark amid soft US dollar conditions.
  • USD is lower amid a risk-on tone to markets on Monday, despite the absence of US and Chinese players.

Spot silver prices (XAG/USD) have been on the front foot on the first trading day of the week. Spot prices have advanced from the $27.30s to above the $27.50 level, with prices reaching European morning session highs around $27.70, not far from last week’s $27.80 highs. A break above last week’s high might open the door to a steady grind back towards early month highs of just above the $30.00 level, though this would require a furthermore than 9% appreciation from current levels, a move that seems unlikely to happen in the short-term.

Soft US dollar conditions are the main factor driving XAG/USD higher on Monday. Later this week, updates regarding the path of US fiscal stimulus in the US Congress, updates regarding global vaccination and infection trends in the Covid-19 pandemic, the release of the minute from last month’s FOMC meeting, as well as US data in the form of US January Retail Sales on Wednesday and preliminary US February PMIs on Friday are all key price action driver to be aware of.

Driving the day

Safe havens assets are struggling on the first trading day of the week, despite the absence of Chinese and North American market participants, both of whom are celebrating respective public holidays (Presidents’ Day in America and still midway through Lunar New Year celebrations in China). Global equity and crude oil markets have been rallying given optimism regarding the state of the global pandemic (the UK hit the crucial milestone of vaccinating its 15M most vulnerable citizens and the US is seeing a continued drop in the infection rate whilst it ramps up its vaccination efforts).

Positive pandemic news comes against the already favourable backdrop of expectations for more US fiscal stimulus, ongoing global central bank support and a rapid global economic expansion to begin later in the year as populations in key developed markets hit herd immunity. Hence, US equity index futures have been pushing on to fresh all-time high levels on Monday and US bond yields are also rising (the 10-year is now above 1.21%), though, importantly for USD, real yields remain low (the 10-year TIPS sits at -1.02%). For rising nominal yields to be bullish for the US dollar, they will have to be accompanied by rising real yields (which would make the USD a more attractive investment relative to other currencies).

With the US dollar under pressure, and the Dollar Index (DXY) having dropped back to close to last week’s lows in the 90.20s (the index currently trades in the mid-90.30s), and inflation expectations seeing further upside, this is a bullish combination for precious metals markets. Not that gold markets have been buying into this (XAU/USD is about a quarter of a percent lower trading close to $1820), but silver, palladium and platinum are all seeing upside.