Silver Price Analysis: XAG/USD pulls back under $26.00 from one-month highs, remains underpinned for now

• Silver has pulled back into the $25.80s from earlier more than one-month highs in $26.20s as US yields/USD rose.
• But XAG/USD hold onto gains for the day amid elevated geopolitical/inflation concerns.

After hitting its highest levels in more than one month in the $26.20s per troy ounce, profit-taking has seen spot silver (XAG/USD) prices pull back into the $25.80s, eroding the day’s gains to only about 20 cents or about 0.8%. That compares the gains of as much as 60 cents or over 2.0% at earlier highs. Bouyant US yields that saw major benchmarks hitting fresh multi-year highs, and a strong US dollar that saw the DXY hit its highest point since April 2020 are probably the main reasons why silver bulls decided to book profits.

Higher US yields raise the “opportunity cost” of holding non-yielding assets like silver, hence the typically negative correlation. Meanwhile, a strong US dollar makes USD-denominated commodities more expensive to the holders of international currency, hence the typically negative correlation between XAG/USD and the buck. But in recent weeks, this correlation has been notably weaker than usual given elevated geopolitical/inflation concerns.

And those concerns were key factors driving the market’s mood on Monday. Even though trading volumes were low due to market closures in Europe and some Asia Pacific countries, precious metals markets saw decent gains as the fighting in Ukraine intensified and prospects for a peace deal further receded. This has helped ignite further upside in global energy markets and given the expectation that strict Western sanctions on Russia aren’t going away any time soon, demand for inflation protection remains strong.

This will remain a key theme this week in precious metals markets. Even if Fed Chair Jerome Powell is hawkish in his remarks on Thursday and this does ignite further upside in the US dollar and US yields, many silver bulls will be confident that XAG/USD will soon take the $26.00 level and march on towards recent highs near $27.00.