Silver Price Analysis: XAG/USD pushes to fresh monthly highs, eyes move to $23.00

Spot silver (XAG/USD) prices have been pushing higher this Wednesday and, having found support earlier in the session at the $22.50 area, are now trading around weekly/monthly highs just under $22.80. At current levels, spot prices are about 1.0% higher on the day. Dollar weakness is the main driver of the strength being seen across precious metals markets, with the DXY lower by about half a percent, making dollar-denominated precious metals slightly cheaper on the international market.

Slightly lower US nominal and real yields are also liking giving silver some tailwinds, with the 10-year down about 2.5bps and heading back towards 1.45% and the 10-year TIPS yield down a similar amount and back under -1.0%. This reduces the opportunity cost of holding non-yielding precious metals, thus boosting demand. Yields and the dollar are both softer despite strong final US Q3 GDP figures and better than expected December Consumer Confidence numbers.

In truth, both yields and the dollar and just consolidating within recent ranges with markets more broadly trading with a lack of conviction as year-end and Christmas holidays fast approach. That suggests that while silver is trading at monthly highs in the $22.75 area, it may struggle to make further significant upwards strides. A test of $23.00 is certainly on the cards, but has been a key balance area in recent months and will thus offer tough resistance.

With the Fed primed to turn more hawkish in 2022, the scope for future silver (or gold) rallies seems increasingly limited. With the precious metals bears are prowling, any push to $23.00 or beyond may be seen as an opportunity to load up on short positions.