XAG/USD pulls back from 1-month highs below $26.00, remains underpinned for now

  • Silver retreated to $25.80 from a previous more than a month high of $26.20 as US yields/USD rose.
  • But XAG/USD holds daily gains amid heightened geopolitical/inflation concerns.

After silver (XAG/USD) hit a more than a month high of $26.20 an ounce, spot silver (XAG/USD) fell back to $25.80 on profit taking, capping daily gains to only about 20 cents or about 0.8% undermined. That compares gains of up to 60 cents, or over 2.0%, to previous highs. Rising U.S. yields, with major benchmarks making new multi-year highs, and a strong U.S. dollar, with the DXY hitting its highest level since April 2020 are likely the main reasons silver bulls decided to book gains.

Higher US yields increase the “opportunity cost” of holding non-yielding assets like silver, hence the typically negative correlation. Meanwhile, a strong US dollar makes USD-denominated commodities more expensive for international currency holders, hence the typically negative correlation between XAG/USD and the dollar. However, in recent weeks this correlation has been significantly weaker than usual amid heightened geopolitical/inflation concerns.

And those concerns were key factors driving market sentiment on Monday. Although trading volumes were low due to market shutdowns in Europe and some Asia-Pacific countries, precious metals markets posted decent gains as fighting in Ukraine intensified and prospects of a peace deal continued to decline. This has contributed to further upside in global energy markets and with expectations that tough Western sanctions on Russia will not be lifted any time soon, demand for inflation protection remains strong.

This will remain a key theme in the precious metals markets this week. Even if Fed Chair Jerome Powell is hawkish in his comments on Thursday and this brings further upside for the US dollar and US yields, many silver bulls will remain confident that XAG/USD will soon reach the $26.00 level and marching close to the recent highs will be $27.00.

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