Silver Price Analysis: XAG/USD little changed in $22.20 area after headline NFP misses forecasts

• Spot silver prices were choppy post-NFP but are little changed from pre-data levels in the $22.20 area.
• Headline US job gains missed expectations but measures of slack point to an improving and tight labour market.

Spot silver (XAG/USD) prices have seen a confused, two-way reaction to the latest US labour market report. Spot prices at one point dipped under the $22.00 level, but have since rebounded back to in line with pre-data levels near $22.20 after printing session highs just under $22.30. For reference, headline job gains in the US disappointed, but measures of slack showed indicated that the US labour market continued to make progress to “near-term” full employment (i.e., full utilisation of workers actually willing to engage in the labour force at present). As such, the money market impied probability that the Fed lifts interest rates by 25bps in March moved slightly higher to 90% from 80% prior to the release.

Given the mixed nature of the report and as traders continue to digest what it means for the outlook for Fed policy, FX and bond markets arent much moved. If anything, the dollar is a tad weaker, with the DXY currently testing the 96.00 level. Meanwhile, US 5 and 10-year TIPS (real) yields are flat in the respective -1.34% and -0.77% areas, roughly in line with pre-data levels. From a correlation standpoint, it thus makes sense that data hasn’t had much follow-through for precious metals yet either.

While silver appears to have made it through NFP unscathed (to the surprise of some), it may be too soon for the bulls to declare this week’s selling pressure over, given that three Fed speakers will be orating over the course of the afternoon. Fed’s Mary Daly is up first at 1500GMT, followed by remarks from Fed’s Raphael Bostic at 1715GMT and Thomas Barkin at 1730GMT. The tone of their remarks is likely to echo the hawkish minutes, with FOMC participants seemingly in agreement on most aspects of monetary policy. Bond yields have come a long way higher on the week to price in a more hawkish Fed and, at current levels, XAG/USD is set to end the week nearly 5.0% lower. Perhaps that limits the scope for further losses. If not, a break below $22.00 would open the door to a test of December lows around $21.40.