Silver Price Analysis: XAG/USD now testing 200DMA at $24.65 after surging another nearly 2.0% on the day

• Spot silver has surged another near 2.0% to above $24.50 on Thursday, taking its on-the-week gains above 7.0%.
• Recent stabilisation of the US dollar and US real yields has given precious metals the green light to rally.
• XAG/USD is currently testing its 200DMA, having failed to break above it on both of the last two attempts recently.

In a bullish medium-term signal, spot silver (XAG/USD) prices broke to the north of a key long-term downtrend (linking the May, June and November 2021 highs) on Thursday to surge above the $24.50 per troy ounce level. At current levels around the $24.60 mark, spot prices are now up nearly 2.0% on the day, taking gains on the week to over 7.0%. The precious metal is now eyeing a test of its 200DMA at $24.65, a break above which would open the door to a test of the $25.00 level and the November 2021 highs in the $25.40s.

Over the past two days, during which time XAG/USD has rallied about $1.20 from underneath the $23.50 level, precious metals have taken the opportunity to rally amid subdued trading conditions in US bond and currency markets. The rally in US real yields has faded over the past two sessions and the DXY, which started the week on a strong footing, has struggled to hold above 95.50.

Meanwhile, China has been easing monetary policy settings, with the PBoC already cutting MLF and mortgage rates this week and pledging to embark on further stimulus in the weeks ahead. This has boosted appetite for base metals (copper, iron ore, nickel etc.) on hopes for Chinese growth to stabilise and pick up again later in the year and seems to be aiding spot silver – a greater proportion of silver’s demand comes from industrial usage in comparison to gold.

Looking ahead for the precious metal, technical momentum has clearly swung in a substantially bullish direction but, for this to continue, a break above the 200DMA will be needed. Over the past seven months, XAG/USD has tested its 200DMA on two occasions and failed to break above it twice. Both of these failed attempts were followed by significant drawdowns (of 17.5% and 15.6%). With the Fed on course to tighten in 2022 and risks for the US dollar and real yields subsequently tilted to the upside, some traders may see XAG/USD’s current levels as a good time to add to short positions. Some may be reluctant to sell into such a ferocious rally, however.