Silver Stumbles: U.S. Dollar Dominance and Soaring Treasury Yields Cast a Shadow Over Precious Metals

The recent strength of the U.S. Dollar and the dramatic runup in Treasury yields have put considerable pressure on silver and gold, discouraging precious metals buying from investors holding other currencies, according to FX Empire’s James Hyerczyk.

Hyerczyk noted that spot silver prices hit two-week lows on Wednesday, bouncing off $23 an ounce around 11 am EDT. “This drop coincides with the U.S. dollar approaching a six-month high and a surge in U.S. Treasury yields,” he said. “The prevailing sentiment suggests an ongoing demand for high-interest rates, largely fueled by concerns surrounding China’s economic status and worldwide growth. Consequently, silver, similar to gold, becomes less accessible for those holding foreign currencies.”

After the Labor Day long weekend, Hyerczyk said market participants’ focus has been on rising U.S. Treasury yields, which hit a 14-year high late last week, along with rising oil prices. “The backdrop to this market tension is last Friday’s nonfarm payrolls report, which indicated a peak in unemployment rates since early 2022 and declining hourly earnings, causing a shift in investors’ views on inflation and Federal Reserve policies,” he said.

Hyerczyk noted that the CME FedWatch tool indicates a 93% chance of a hold at the next Fed meeting, but markets are wary of one or more potential hikes by the end of the year depending on what the data show.

“Recent reports indicate a slowing global business landscape, bolstering the appeal of the U.S. dollar as a stable asset over precious metals like silver and gold,” he said. “Confirming this sentiment, the SPDR Gold Trust, a leading gold-backed exchange-traded fund, registered a 0.1% drop in its holdings.”

Hyerczyk said the combination of sky-high U.S. interest rates and Treasury bond yields with a strengthening U.S. dollar mean the short-term outlook for silver is solidly bearish. “The increased opportunity costs associated with retaining unyielding silver, in conjunction with impending policy shifts, cement a gloomy prediction for this precious metal,” he said.

Looking at the technical picture, Hyerczyk pointed out that spot silver’s price on the 4-hour chart is currently below both the 200-4H moving average of $23.75 and the 50-4H moving average of $24.24, which indicates a bearish trend.

Source: Kitco

He noted, however, that “The 14-4H RSI at 30.74 suggests the commodity is nearing oversold conditions, signaling potential exhaustion in the recent downward momentum,” and that XAGUSD “remains above the main support zone (22.70 to 22.28) but has room before reaching the main resistance (25.00 to 25.27).”

“No minor support or resistance levels have been identified,” he concluded. “Collectively, these technical indicators suggest a currently bearish sentiment for sSilver on a 4-hour chart perspective.”

Originally published by Ernest Hoffman at Kitco