Silver price sell-off sees no end as bond yields, DXY rise

Silver (XAG/USD) price crashed to the lowest level since November as short-term treasury yields and the US dollar index (DXY) jumped. It plunged to a low of $20.54, which was about 16.8% below its highest point this year, meaning it has entered a correction zone.

Bond yields surge

Silver price has been in a strong downward trend in the past few weeks amid multiple concerns. First, there is the rising risk that the Chinese economy will not stage a quick recovery as was widely expected when it did away with its Covid-zero strategy. Recent data on manufacturing have shown that the economic recovery is slower than expected.

Therefore, in this regard, the upcoming National People’s Congress (NPC) will provide hints about what to expect. The Xi Jinping administration is expected to provide its GDP estimate for the year. You can read about the NPC in this article. China is an important market for silver because of its huge industrial base. 

The other main challenge for silver and other metals is the strong US dollar. The dollar index (DXY), which compares its performance against a basket of currencies, has jumped to $105, the highest point since January. In most periods, silver price tends to do well when the US dollar index is plunging. 

Furthermore, the performance of the bond market has had an impact on silver and other risky assets, like Ethereum. Short-term bonds have risen in most countries as investors predict that central bank officials will continue hiking interest rates in the coming months.

Data published last week showed that inflation remained at an elevated level in January. Additional data revealed that pending home sales data also rose, signaling that high-interest rates are not having a major impact on the economy. 

Silver price prediction

XAG/USD chart by TradingView

In my last XAG/USD forecast, I noted that silver would continue falling in the coming weeks. This prediction was accurate as silver has managed to move below the key support at $21.24, the highest point on October 4, and the 38.2% Fibonacci Retracement level. 

Silver remains below all moving averages while the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the outlook of the metal is extremely bearish, with the next level to watch being at $19.50. The stop-loss of this trade will be at $21.25.