Silver Price Forecast: XAG/USD drops towards $25.00 as supply concerns ease amid risk aversion

• Silver price snaps two-day winning streak, renews intraday low of late.
• The Silver Institute reports the record supply deficit amid new peak of global XAG/USD demand in 2022.
• Inflation, rate hike fears join geopolitical concerns to prod the Silver price.

Silver price (XAG/USD) drops to $25.20 while refreshing intraday low during early Thursday. In doing so, the bright metal prints the first daily loss in three as fears of supply crunch recede amid a risk-off mood.

On Wednesday, Reuters quoted the Silver Institute’s yearly outlook report to mention that the global demand for Silver rose by 18% last year to a record high of 1.24 billion ounces, creating a huge supply deficit. The report also adds, “The Silver market was undersupplied by 237.7 million ounces in 2022, the institute said in its latest World Silver Survey, calling this ‘possibly the most significant deficit on record’,” per the news.

On the other hand, higher inflation clues from the UK, Eurozone and the US join hawkish comments from the central bank officials of the Bank of England (BoE), European Central Bank (ECB) and the Federal Reserve (Fed) to propel odds of rate hikes and weigh on sentiment. Among the latest policy hawks from the Fed is New York Fed President John Williams who marked support for a 0.25% interest rate hike in May while saying, “Inflation is still too high, and we will use our monetary policy tools to restore price stability.” Just before him was Chicago Federal Reserve Bank President Austan Goolsbee who highlighted credit market strength as one of the key catalysts to watch ahead of the next Fed monetary policy meeting.

With this, the market players place higher bets on the central bank’s 0.25% rate hike in May almost 85% at the latest, as well as reduce the probability of witnessing a rate cut in 2023.

It should be noted that the UK’s allegations of China’s hidden motive to crack down on the Western infrastructure and the US House China Committee’s discussion on the Taiwan invasion scenario renew the West versus China tussle story and weigh on the sentiment. On the same line are the fears surrounding the likely drag on the US debt ceiling decision due to US President Joe Biden’s hesitance in lifting debt limits.

Furthermore, Reuters came out with the news suggesting that US consumers are starting to fall behind on their credit card and loan payments as the economy softens, which in turn also challenges the XAG/USD prices.

Against this backdrop, S&P 500 Futures print the first daily loss, so far, in four around 4,168, down 0.25% intraday by the press time. However, the US 10-year and two-year Treasury bond yields grind near 3.60% and 4.25% respectively after refreshing the monthly top the previous day. It should be noted that the US Dollar Index (DXY) seesaws around 102.00 after reversing the bearish bias the previous day.

Looking ahead, the recent emphasis on qualitative headlines highlights them as the key risk barometer. That said, the US Weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey and Existing Home Sales are on the calendar to watch for fresh impulse

Technical analysis

A clear downside break of a three-week-old ascending trend line, now immediate resistance around $25.80, keeps the Silver price on the bear’s radar.