XAG/USD is stabilizing in the mid-$23.00 area but failing to reclaim the 200 DMA or $24.00 level
- Silver recovered somewhat on Tuesday after losing over 6.0% in the last three sessions.
- Against the background of a strengthening US dollar, however, the precious metal remains threatened with further price losses.
- After XAG/USD failed to reclaim its 200DMA at $23.80, bears are calling for further downside and are eyeing the 2022 lows.
Spot silver (XAG/USD) prices recovered somewhat on Tuesday after falling more than 6.0% between last Thursday and Monday. XAG/USD is currently trading flat near the $23.60 a troy ounce level on the day, although it was on an earlier attempt to revisit the 200-day moving average at $23.85 and cleared key resistance $24.00 to test failed.
Precious metals markets owed their stabilization on Tuesday to a continued decline in US and global bond yields as investors worry about the global growth outlook but continue to struggle to start a recovery on the back of the strong US dollar. The US Dollar Index (DXY) temporarily rose above 102.00 in earlier trading for the first time since March 2020, mainly on weakness in the euro and sterling.
Traders are citing a combination of still very skewed broader market risk appetite conditions (which tend to benefit the safe-haven dollar) and expectations that the Fed will beat many of its major G10 central banks (like the ECB and BoE) on monetary tightening as support for the dollar on Tuesday and in recent sessions.
While weak risk appetite is traditionally seen as positive for silver and other precious metals, a stronger US dollar makes USD-denominated precious metals more expensive for overseas buyers, thereby reducing demand. If the dollar is strong because the Fed is tightening expectations, that’s a double whammy as higher interest rates increase the “opportunity cost” of holding non-profitable assets like silver, further reducing demand.
Technicians may interpret XAG/USD’s failure to retake its 200DMA as a bearish sign going forward. US Q1 GDP and March PCE core data to be released later this week should underscore expectations that Fed tightening will be on autopilot for the remainder of the year and could silver further on further undermined as the week progressed. Longer-term bears will eye an eventual pullback all the way down to support in the form of the 2022 lows in the $22.00 area.