Silver price eases as yields bounce back

The price of silver has continued to ease, seemingly vulnerable to a rise in the 10-year US Treasury yield. The 10-year note traded briefly at yield of 2.676 percent on Wednesday, which marked a one-week low for the benchmark. The 10-year yield has today returned above 2.7 percent, making silver appear a less attractive investment.

Historically precious metals have had a strong negative correlation with US real rates, meaning silver performs well when the difference between interest rates and inflation is declining.

The traditional view is that higher real rates result in lower bullion prices because those yields reduce the appeal of non-yielding investments like precious metals. Given that inflation data is released only in a small number of days per month, traders should not be surprised by the lock-step movement of 10-year Treasury yields and silver.

Expectations of rising yields

A Bloomberg survey of 67 economists this month revealed that every single one of them expects the yield on 10-year T-bonds to rise in the next six months. Analysts have been notably bearish on Treasuries and precious metals since the start of 2014, with 97 percent of those surveyed in January anticipating yields would climb.

However, the 10-year yield has eased from its two-and-a-half-year high of 3.048 percent, reached on 29 December, and have outperformed equities so far this year.

When the entire market thinks one thing is about to happen, the opposite upshot is often in store, emphasizes James Camp, managing director of fixed income at Eagle Asset Management.

The last time the Bloomberg survey showed a unanimous expectation for rising yields was in May 2012. Surprisingly, the 10-year Treasury yield fell from 1.9 percent to under 1.4 percent in three months.

The benchmark yield traded near 1.6 percent at the end of the six month forecast period in November 2012.

So far today, the price of silver has continued to be capped by the 4-hourly kijun-sen – a line used in Ichimoku cloud analysis that has acted as the resistance of last resort for the metal since 15 April.

The kijun-sen is currently at $19.446 and the price of silver is fluctuating at around $19.341, down 0.65 percent intraday.