Precious metals weakness led by silver

Precious metals continue to struggle with rising bond yields a stronger dollar and bouncing stocks further reducing demand for diversification. While gold earlier in the week showed signs of resisting the latest rise in US Treasury yields, both metals succumbed to fresh selling yesterday as the dollar broke higher to reach a one-year high. 

Reasons for the current dollar strength may ultimately also support gold from a safe-haven perspective, but for now with both metals on the defensive, speculators see no reason to get involved on the long side until the charts tell them otherwise.

• Fed chair Powell and his counterparts at the ECB, BOJ and BOE all see rising inflation rates around the world as temporary and mostly driven by supply bottlenecks.
• The Fed is likely to begin scaling back asset purchases in November while the timing of the first-rate hike has been forward to late 2022.
• In the US, President Biden is struggling to find support for his economic plan while the debt ceiling can have been kicked down the road to December 3
• China’s factory activity contracted in September as the electricity crunch and fight against pollution has slowed the economy at a time of heightened concerns driven by the Evergrande debt crisis.

These and other recent developments have all joined forces to support the dollar and yield, with silver the hardest hit. After breaking below key support at $22 yesterday it continued lower to reach $21.41, a level last seen some 14 months ago. This move resulted in the gold-silver ratio rising above 80 (ounces of silver to one ounce of gold) for the first time since last November.