Silver Price Analysis: XAG/USD eyes test of September lows in $21.40s ahead of Fed policy announcement

• Spot silver prices are on the back foot in advance of Wednesday’s key Fed meeting, recently dropping into the $21.50s.
• XAG/USD is at risk of further downside should the Fed surprise hawkishly, with a move towards $21.00 on the cards.

Spot silver prices (XAG/USD) have continued their downwards trajectory on Wednesday in the run up to Wednesday’s pivotal Fed policy announcement, with spot prices recently dropping into the $21.50s for the first time since the end of September. Broader market sentiment is subdued pre-Fed, as is typically the case, with a softer than expected US November Retail Sales report versus a stronger than expected December NY Fed survey having been ignored. But this hasn’t been enough to stop the rot in silver markets, with spot prices now down a further 1.7% on the day despite a flat US dollar and US yields curve. That takes the precious metal’s weekly losses to about 2.7%.

As such, silver bears will be eyeing the September lows in the $21.40s and XAG/USD may well get there in advance of 1900GMT (when the Fed’s rate decision and statement is announced). If the Fed is as hawkish as many strategists suspect they will be in doubling the pace of the QE taper and indicating multiple hikes in 2022, this could further add to silver’s woes. A break below $21.40 brings in sight the next key support in the form of the June highs around $21.15. If that level goes, it’s a clean run lower to the early September high just above $19.50.