Silver Price Analysis: XAG/USD hovers tentatively above $25.00 level ahead of more Fed speak

A pullback in the US dollar and retracement lower from fresh multi-year highs in yields across the US curve has offered spot silver (XAG/USD) prices little by way of respite on Wednesday. XAG/USD continues to trade with small on-the-day losses just above the $25.00 per troy ounce mark, having admittedly fended off earlier session pressure that saw the metal dip as low as the $24.89 and eye a test of its 50-Day Moving Average at $24.83.

Trade is understandably cautious ahead of more rhetoric from Fed policymakers later this session, and ahead of remarks from Fed Chair Jerome Powell on Thursday. Policymakers have for the most part conveyed a consistently hawkish message that rates will be lifted “expeditiously” to at least the neutral area in the coming quarters, including at 50 bps intervals at the next few policy meetings.

Meanwhile, Fed policymakers are sounding increasingly open to the prospect of taking interest rates above neutral in order to tackle rampant inflation. If Powell’s remarks on Thursday strike a hawkish tone, recent upside in the US dollar and US yields could be reignited, presenting further downside risks for silver. A stronger US dollar makes USD-denominated commodities more expensive for foreign buyers, while higher yields represent a rise in the “opportunity cost” of holding non-yielding assets (like silver).

A dip back below $25.00 is certainly on the cards for the second half of this week. However, with geopolitical tensions still very high as the US/NATO ups weapons shipments to Ukraine as Russia escalates its assault in the eastern Donbas oblast and sanctions only likely to be tightened from here, stagflationary risks to the global economy remain elevated. This should mean good demand for silver it slips back towards the low $24.00s.