Silver Price Analysis: XAG/USD pulls back under $24.50 as US dollar, yields press higher

• Silver has pulled back under the $24.50 level as the US dollar and US yields press higher into the weekend.
• XAG/USD continues to trade close to its 50DMA.
• Hawkish Fed chatter is a downside risk, but silver continues to benefit from demand for inflation-protection.

Spot silver (XAG/USD) prices have pulled back from earlier session highs in the $24.70s to trade back under the $24.50 level once again, where they now trade down about 0.8% on the day. That means XAG/USD is back to within a few cents of its 50-Day Moving Average at $24.44, which has been acting as a bit of a magnet to the price action in recent days.

Selling pressure returned to precious metal markets in recent trade amid continued strength in the US dollar and upwards moves across the US yield curve. FX and bond markets have this week been reacting to hawkish rhetoric from Fed policymakers, who seem more and more onboard with 1) lifting rates quickly back to neutral and potentially above and 2) reducing the size of the balance sheet rapidly. Higher yields increase the opportunity cost of holding non-yielding assets such as silver, whilst a stronger dollar makes USD-denominated commodities more expensive for the holders of foreign currency.

XAG/USD now looks on course to post a weekly loss of about 0.7%, which is not as bad as some strategists might have expected given the extent of the recent moves higher in USD and US yields. Many silver bears were targeting another test of recent lows in the $24.00 area, which did not manifest (this week’s low point was at $24.12). Developments related to the Russo-Ukraine war, primarily its disruptive impact on the global economy, mean a geopolitical risk premia remains priced into precious metals, as well as demand for inflation protection.

Ahead of next week’s key US Consumer and Producer Price Inflation figures for March, investors may want to hold onto the likes of silver and gold. A big upside surprise might trigger a bounce, as has happened a few other times in the last six months, even though an upside surprise would also lead to further bets on Fed tightening.