XAG/USD briefly falls below $24.00 before recovering above $24.50 in volatile trading
- Silver was volatile on Tuesday, briefly dipping below $24.00 but then bouncing back above $24.50.
- Positive Russian-Ukraine updates sparked the initial drop below $24.00 while falling yields then supported the recovery.
- But that still leaves prices more than 1.0% lower during the session.
It’s been a volatile session for Spot Silver (XAG/USD) with prices now back just above $24.50 after trading below the key $24.00 level at one point to attempt key support in the form of the moving 200- Test day average. A combination of factors has impacted precious metals prices, with the initial drop below $24.00 as a result of the knee-jerk reaction to positive updates on the Russian-Ukrainian issue, but the recent rally is likely due to a drop in yields.
Indeed, commodity prices such as oil have fallen sharply in the wake of recent positive Russian-Ukrainian comments, and this has led bond market participants to scale back the inflation compensation they are asking for bonds (ie higher yields). Lower yields reduce the “opportunity cost” of holding non-yielding precious metals, and so the trend reversal arguably helped support spot silver’s rally from more than a month’s low.
Thus, with silver finding robust support in the $24.00 area and 200 DMA, the bears may not be confident of further downside going forward. While lockdowns in China could ease energy prices, they risk exacerbating problems in the global supply chain, which could exacerbate the inflation problem and thus pose an upside risk for silver. This will be a key issue to watch.
That and geopolitics aside, there’s plenty of data for investors to dig into this week, culminating in Friday’s official jobs report. All of this data should feed into the narrative of a hawkish Fed looking to bring interest rates back to neutral as soon as possible, and the Fed’s rhetoric, such as Patrick Harker’s recent comments, should also reinforce that narrative. This is a downside risk for silver, but high inflation could continue to wipe it out for now.