Silver Price Analysis: XAG/USD rallies towards $26.00 despite higher dollar/yields amid geopolitical woes

• Silver prices rallied into the upper $25.00s on Thursday amid focus on further upside in US breakeven inflation expectations.
• Silver’s resilience to the higher dollar and yields amid the Fed’s hawkish shift is likely due to ongoing geopolitical concerns.

Spot silver (XAG/USD) prices rallied to ten-day highs on Thursday, breaking back above the $25.50 mark and at one point nearing the $26.00 per troy ounce level. Prices have subsequently leveled off in the $25.60s where they trade higher by about 2.1% on the day, taking gains since Tuesday’s weekly lows in the $24.50s to more than 4.0%. Silver prices were up alongside other precious metals despite a stronger US dollar and higher US yields (both of which would normally weigh on silver). Focus was instead on long-term US inflation expectations after the 5-year break-even rate hit a record high above 3.6%. That implies US bond market participants see US CPI averaging 3.6% over the next five years.

The rise in inflation expectations since Russia’s invasion of Ukraine has been steep and has unsurprisingly been a key factor underpinning precious metals, which are viewed as an asset class that provides inflation protection. Indeed, silver's (and gold’s) resilience in recent days despite the rally in US yields and the USD as a result of the Fed’s latest hawkish shift has been quite remarkable. Was it not for recent geopolitical developments and the stagflationary risks that Russia’s war in Ukraine creates, the likes of silver would likely be substantially lower at this point.

With commodity strategists fearing that the worst is yet to come regarding the recent rise in energy prices and with Russo-Ukraine peace talks showing no signs of headway whilst Western nations continue to toughen their Russia sanctions, precious metals are likely to remain underpinned. Thursday push back above the 21-Day Moving Average in the $25.25 area for XAG/USD will raise confidence amongst the bulls that a near-term rally back above $26.00 is possible. That would reopen the door to a retest of earlier monthly highs near-$27.00.