Silver price forecast as US bond yields, DXY index plunge

Silver price has bounced back in the past few days as investors embrace a risk-on sentiment in the market. The XAG/USD pair jumped to a high of 24.50 on Friday, higher than this month’s low of $22.52. It has risen by almost 40% from its lowest point in 2022.

US bond yields retreat

Silver prices have bounced back in the past few weeks as investors have embraced a risk-on sentiment. Several signs illustrate this. First, a quick look at the bond market shows that market conditions are doing well.

The 10-year bond yield retreated to 3.85% while the 30-year dropped to 4%. These yields were trading above 5% in October. At the same time, the bond spread between the 10-year and 2-year has widened to -46.

Meanwhile, the US dollar index (DXY) has dropped to $101.27, much lower than the year-to-date high of $107.2. The dollar has crashed hard against other currencies like the euro, sterling, Swiss franc, and the Japanese yen.

The CBOE VIX index has dropped and is sitting at a multi-year low of $13 while the fear and greed index has jumped to the greed area of 74. In most cases, silver price tends to do well when there is a sense of greed in the market.

The main catalyst for the silver price has been the recent trends on inflation and the potential actions by central banks. The most recent data from the US showed that the headline Consumer Price Index (CPI) dropped to 3.1%. At the same time, the UK inflation dropped below 4% in November.

Therefore, there is a likelihood that these central banks will start cutting interest rates in the coming months. The Fed has pointed to three cuts in 2024. Other banks set to cut rates are the ECB, BoE, and the Swiss National Bank.

There are also signs that the Chinese economy is doing relatively well. The most recent data showed that the country’s retail sales and industrial production bounced back in November. While the economy is still struggling, there are signs that the recovery will be better than expected.

China is an important market for silver since it is the biggest customer. There are also signs that other Western countries will crawl back in 2024.

Silver price forecast

Silver chart by TradingView

The daily chart shows that silver prices have bounced back in the past few days. In this period, the precious metal has moved above the second support of the Andrews pitchfork. It has moved above the 50-day and 100-day Exponential Moving Averages (EMA).

Silver has risen above the 23.6% Fibonacci Retracement level. Most importantly, it has formed an inverted head and shoulders pattern, which is a bullish sign. Therefore, the outlook for silver is bullish, with the next point to watch being at $25.91, the highest swing this month.