Silver Traders Focus on Long-Term Rates Over Deficit and Rate Hikes

Silver's price movement is closely tied to long-term interest rates and oil prices, according to recent market trends. In September, the US Treasury bought $5.2 billion of its own long bonds in an attempt to hold down yields, but this effort was unsuccessful as long-term yields rose anyway.

The 30-year yield fell to 5.196% on August 19 after the Treasury announced it would double the size of its buybacks of long-dated bonds, causing silver to rise 14.9% in August. However, when the Treasury ran a larger-than-promised operation on September 10, buying $5.2 billion of its own debt back from dealers, yields still rose.

The key takeaway is that silver's price movement is not driven by the size of the deficit or the Fed's rate decisions, but rather by changes in long-term interest rates and oil prices. This was evident when long yields fell after the September 16 Federal Reserve rate hike, causing silver to rise despite the tighter monetary policy.

The Treasury's enlarged buyback program continues through November 4, and if yields finish above their August level without a corresponding rise in silver, it would indicate that the debasement mechanism is broken. However, if yields fall and silver rises, this would confirm the rule that silver trades long-term interest rates.