Silver Price Analysis: XAG/USD rallies above key $22.60 resistance area as Powell offers few surprises

Silver has rallied alongside other asset classes recently hit by Fed hawkishness after Powell’s remarks didn’t offer any surprises.

XAG/USD has rallied to the $22.75 area, clearing its 21DMA and key short-term resistance in the $22.60s.didn’t add any further fuel to the fire regarding the market’s recent hawkish repricing of Fed policy expectations seems to have been taken as a green light for some reversal of recent moves.

Given their negative correlation to the buck and real yields, the net result for precious metals markets has been positive, with spot silver prices currently up more than 1.0% on the day. Spot prices had been struggling to get back above their 21-day moving average at $22.60 in the run-up to Powell’s testimony but have since broken higher to the $22.75 area. In doing so, spot silver has also managed to clear key resistance in the $22.

Some strategists had been warnings that the recent moves observed in US real yields had been overdone and Tuesday’s retracement is overdue. To recap, US 10-year TIPS yields nearly hit -0.70% on Monday, up from -1.1% at the start of the year. On Tuesday, it has pulled back to under -0.80%, with an even larger move lower being seen on the day in 5-year TIPS yields. Lower real yields lowers the opportunity cost of holding non-yielding precious metals, hence the negative correlation.

That would especially be the case if the US dollar, which has weakened in wake of Powell’s remarks likely as a result of position adjustment, starts strengthening broadly. Speculators have built up heavily long-dollar positions in recent weeks, so some further dollar downside as some of the weaker hands are flushed out may see dollar downside continue. But any dollar/real yields weakness fuelled rally back towards recent highs in the $23.

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