Silver drops under $26.00 amid technical selling, despite lack of fundamental catalysts
- Spot silver has recently dropped back under the $26.00 level amid technical selling on the breach of support.
- There does not appear to have been any fundamental justification for the drop, with markets subdued ahead of Wednesday’s FOMC.
Spot silver prices (XAG/USD) have been on the back foot in recent trade, amid what seems to be a bout of technical selling more than anything else; XAU/USD prices recently dropped below support at the $26.00 level, having failed earlier in the session on Tuesday to break above Monday’s highs at $26.30. Bears appear to have been targeting a move towards this week’s lows at the $25.80 level, though they just missed out on this and XAG/USD is currently consolidating just under $26.00 in the $25.90s.
Aside from technical selling, there appears not to be much else justification for why silver is on the back foot; US government bond yields are a tad lower and the US dollar is flat – usually, with subdued conditions in these two markets, precious metals would also be subdued. Meanwhile, markets appear to have largely shrugged of Tuesday’s weaker than expected US February Retail Sales and Industrial Production reports. Market participants appear to be keeping their powder dry ahead of Wednesday’s FOMC meeting. As of right now, spot silver trades about 1.2% or over 30 cents lower on the day.
US Retail Sales data recap
Headline US retail sales dropped 3.0% MoM in February, reflective of the fading impact of the $600 stimulus cheques received by each American in January. Recount that, in January, headline retail sales rocketed 7.6% higher on the month – that means, amid February’s 3.0% MoM drop in retail spending, US consumers have only partially pulled back on their elevated spending. This pullback in spending is unlikely to last long, given that Americans are now in the process of receiving another, an even larger cheque from the government (this time worth $1400). March may well see history repeat itself with another outsized leap in the MoM rate of retail sales growth.
While the fading impact of stimulus had a key role, the fall in the MoM rate of headline retail sales growth can also be explained in large part by a large 2.3% upwards revision to January’s number, which was revised from 5.3% to 7.6%. Harsh winter conditions also weighed on consumer spending activity (remember that the Texan economy virtually shut down for nearly two weeks as cold weather knocked out the power grids).
“With the new fiscal stimulus likely to drive a big rebound in spending in March, we still estimate that real consumption growth will accelerate to nearly 10% annualised in the first quarter” comments Capital Economics, before concluding that “as the accelerating vaccine rollout allows for a widespread reopening of the economy over the coming months, we expect second-quarter consumption growth to be even stronger”.