Silver prices on recovery after modest US inflation data

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Mar 11, 2021
  • US inflation data eased concerns over inflation as the core CPI rose by 0.1% compared to the predicted 0.2%
  • After dropping to about $24.95 earlier in the week, silver prices were up at $26.22 in Thursday's session.
  • The decline in the US dollar has created a favorable environment for the recovery of the metal's prices.

Early on in Thursday’s session, silver prices were up by 0.12% at $26.22. The recovery has been facilitated by the modest US inflation data. The subsequent decline of the US dollar has created a favorable environment for silver prices to recover from its fall earlier in the week.  

silver prices

Silver’s safe haven status

In February, silver prices hit and surpassed the $30 mark. This has been its highest price level year-to-date. Granted, the r/WallStreetBets community influenced the rallying. However, since then, the precious metal has had its price decline by about 13.44%.

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Notably, silver prices have been under pressure from the rising Treasury yields. On Monday, the prices dropped to around $24.95. This was a market reaction to the rise of the 10-year treasury yields to its 13-month high at close to 1.60%. On the same day, the 2-year and 30-year yields surged by 0.165% and 2.248% respectively.

Rising bond yields are a sign of higher inflation. One of the ways that the Fed is likely to use to deal with the rising inflation is to increase interest rates sooner than its anticipated. This would result in the strengthening of the US dollar, which is an unfavourable environment for silver prices.

However, the US CPI data released on Wednesday came as good news to investors who are keen to trade silver. February’s measure of consumer prices in the US increased at a lower rate than expected. According to the Labor Department, the core CPI rose by 0.1% from the prior month compared to the predicted 0.2%. The readings eased inflation alarms; resulting in the decline of the greenback. This has further helped in capping the losses of silver prices.  

Silver’s industrial demand

Silver prices are finding support from the positive sentiment surrounding the $1.9 trillion US relief package. On Wednesday, the US Congress passed the bill and forwarded it to President Biden. The president is set to sign it into law on Friday. With this substantial amount of money being injected into the economy, investors are hopeful of its speedy recovery.

In addition to being a safe haven and hedge against inflation, silver is an industrial metal. As such, the recovery of the US economy, which is the largest in the world, will positively impact silver demand.  

Besides, the recently released data indicates that the major manufacturing economies are stable. This means that there is a steady industrial demand for the metal, an aspect that has offered support to silver prices.         

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