Silver Price Analysis: XAG/USD consolidates above $21.00 after hitting lowest since July 2020

• Silver is consolidating above $21.00 after hitting its lowest level since July 2020 in the $20.75 region.
• Risk-off flows and lower yields aren’t doing much to help XAG/USD, which is about 2.0% lower on the day.
• Technicians are eyeing more downside to sub-$20.00 levels.

After briefly hitting its lowest level since July 2020 in the $20.75 area per troy ounce, the price of spot silver (XAG/USD) has stabilised just above the $21.00 level. That leaves the metal trading lower by about 2.0% on the session, as the precious metal complex reels against the backdrop of a strong US dollar. With no notable support, all before the 2019 highs in the $19.60s, many technicians think that further XAG/USD downside is likely.

Lower yields across developed markets as a result of a strong safe-haven bid as global equities and other risk assets continue their recent slide has not come to the aid of silver, which is traditionally seen as a safe-haven asset. Meanwhile, further evidence that US inflation isn’t easing as quickly as hoped in the form of the latest US Producer Price Inflation data released earlier on Thursday, which comes on the back of Wednesday’s also hotter than forecast Consumer Price Inflation numbers, has also not sparked any fresh demand for inflation protection that might normally benefit the precious metal

Markets remain very much focused on central bank tightening, with the rhetoric from Fed members this week very much in fitting with Fed Chair Jerome Powell’s message in the post-FOMC meeting press conference last week that substantial further tightening should be expected. Higher interest rates not only by themselves dissuade investors from allocating capital towards silver and gold (given the higher opportunity cost of holding non-yielding assets), but are also likely to result in lower inflation in the long run (as a direct result of demand easing due to tighter financial conditions), lessening the demand for inflation protection.

Reduced demand for inflation protection as a result of the Fed’s hawkish shift in recent weeks can be seen in the recent pullback to multi-month lows in US inflation expectations. 10-year break-evens went as high as 3.1% in mid-April but are now back to the 2.75% area, with this pullback coinciding with the recent drop in XAG/USD.