Silver Price Analysis: XAG/USD set to finish strong week close to highs, though unable to crack 200DMA at $25.40

• Spot silver has failed to push above its 200DMA at $25.40 despite weak US consumer data.
• The precious metal remains on course to post healthy weekly gains of about 4.5%, however, its best performance since May.

Spot silver (XAG/USD) prices have been trying to move above its 200-day moving average at $25.40 on Friday, but to no avail just yet. At present, the index trades around $25.25, which means it is flat on the day, though spot prices have managed a pretty impressive recovery from early European session losses that saw them drop all the way to the $24.80s.

Trading conditions have been thin on Friday. Thursday was a partial US holiday (Veteran’s Day) and, at the time, bond markets were closed, so many US players likely used the opportunity to take a long weekend. Hence, it is probably not too surprising to see spot prices fail to break above their 200DMA. Such a move may have to wait until next week if it is going to happen. Nonetheless, spot silver remains on course to post healthy gains on the week of over 4.5%, its best week since May.

In terms of the fundamentals, it's been a pretty slow session, with the highlight being the release of US consumer sentiment and job openings data at 1500GMT. The University of Michigan’s headline Consumer Sentiment index (the preliminary estimate for November) saw a surprise drop to 11-year lows with consumer citing heightened fears/uncertainty around inflation. Precious metal markets got a little boost at the time, in fitting with the broad theme of demand for inflation protection that has them supported all week.

To recap, Wednesday’s US Consumer Price Inflation report (for October) saw headline price pressures at their highest since 1990 on a YoY basis. The move higher in precious metals reflects fears that the Fed is “behind the curve” when it comes to curbing inflation and may lose control of the situation.

Back to the XAG/USD; with spot silver back to the north of the $25.00, a level which it had been unable to reconquer going all the way back to August, if it can clear the 200DMA, the next key level to keep an eye on it’s the early august high at almost bang on $26.00. But one risk that traders should be aware of is that the Fed may buckle under the mounting scrutiny/pressure from the press and financial markets to adopt a more hawkish stance in order to reign in inflation.

While markets are already to an extent betting on this (that’s why the DXY broke out to fresh annual highs this week and USD STIR markets have brought forward rate hike bets again), an actual endorsement of a more hawkish policy path would be another thing. If the Fed was to send real yields substantially higher in a hawkish policy shift, this would likely undo all of silver’s good work recently. Any hawkish signs next week may send silver back towards $24.00.