Dollar trends will remain a key focus and, despite resilience over the past week, there will be the risk of downward pressure on silver prices if the US currency advances further and bond yields rise.
Dollar trends will continue to have an important impact after the currency pushed to seven-month highs on a trade-weighted basis. Despite a sharp correction on Thursday, there was a strong recovery on Friday, with the index back above 98.00 despite a mixed retail sales report with EUR/USD closing below the 1.1000 level.
Given the dollar strength, silver prices were broadly resilient and ended the week little changed with no further test of support in the $17.00/10 area.
The overall structure of global bond yields will also continue to be very important during the week after US 10-year yields last week increased to the highest level for four months.
In basic terms, a strong dollar and rising bond yields would tend to put downward pressure on precious metals.
The latest COT data recorded a further decline in long non-commercial silver positions to just over 63,000 in the latest week, from just below 76,000 previously and the lowest long position since the first week of June. The further positioning shift will lessen the risk of further sustained downward pressure on spot rates due to positioning shifts.
US data releases will continue to be watched closely during the week ahead with a particular focus on Tuesday’s consumer prices data. A stronger than expected set of data, especially on core data, would increase pressure for a Fed tightening. Even if the immediate impact on policy is likely, there would be a further strengthening of expectations surrounding a December move.
The potentially more important aspect would be the risk of upward pressure on bond yields. There would also be a potential shift in longer-term expectations surrounding the degree of tightening during 2017. These two factors would tend to put further upward pressure on the dollar and also put downward pressure on silver prices. Conversely, weak inflation data would lessen the underlying Fed pressure and tend to support silver prices.
The latest US housing data on Wednesday and Thursday’s Philly Fed survey will also have a significant impact on US yield expectations.
Comments from Fed officials will also be an important element, with a speech from Fed Vice Chair Fischer on Monday likely to be another significant pointer to likely trends.
As well as US developments, the global dimension will also be important for both the dollar and global bond yields. Rising global yields would pose an important threat to precious metals.
The ECB policy meeting will be an important focus on Thursday with further speculation over 2017 expectations. A dovish stance from Draghi could help stem upward pressure on short-term Euro yields, although the overall impact on longer-term yields would be less clear.
A slightly more hawkish tone and hints that the ECB will not extend the bond-buying programme would tend to put upward pressure on yields. Further pressure from ECB President Draghi over the need to boost fiscal policy would also tend to put upward pressure on bond yields.
Silver prices could prove to be more resilient if there is evidence of stronger global growth, given that silver demand is correlated with the global growth outlook, given that silver is sensitive to industrial demand.