Silver Price Analysis: XAG/USD eyeing test of last week’s lows near $24.50 as equities/yields surge
|- Silver has been under selling pressure in recent trade and is eyeing a break below last week’s lows around $24.50.
- Equities are rallying, undermining silver’s safe-haven appeal, and yields are higher, increasing silver’s “opportunity cost”.
Spot silver (XAG/USD) prices have been coming under selling pressure in recent trade and are currently trading at session lows in the $24.60s per troy ounce range, with the bears eyeing a test of last week’s lows at the $24.50 mark. Despite a lack of fresh positive developments regarding the Russo-Ukraine conflict (still no discernable progress in peace talks) and despite recent Fed hawkishness, risk appetite is strong and global equities firmly on the front foot, weighing on demand for safe-havens like silver. Some recent headlines alleging that there is a push going on behind the scenes within the Democrat party to revive Biden’s failed Build Back Better fiscal stimulus package might be helping risk appetite at the margin.
Either way, US (and global) yields are also rising sharply in tandem with US (and global) equities, raising the opportunity cost of holding non-yielding assets such as silver. The US 10-year, for example, is nearing 2.40% for the first time since May 2019, up more than 6 bps on the day and taking month-to-date gains to more than 50 bps. This sharp rise is largely a result of the recent hawkish Fed shift towards signaling 1) a faster pace of rate hikes (i.e. 50 bps intervals at each meeting are likely) and 2) a higher terminal rate (i.e. of above so-called “neutral”).
Should the toxic combination of rallying equities and bond yields continue to undermine demand for precious metals, things could get ugly for XAG/USD. With the pair already down more than 2.0% on the day from earlier session highs closer to $25.50, a break below $24.50 could open the door to a run lower towards the 200 and 50-Day Moving Averages in the $24.00 area. Ahead, geopolitics aside, Fed speak is the main focus over the coming days, with Fed Chair Jerome Powell scheduled to speak against on Wednesday.
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