Silver Price Analysis: XAG/USD rallies to mid-$26s, eyes $27 level amid strong demand for inflation hedges

Spot silver’s (XAG/USD) ascent turned up a gear on Tuesday, with the precious metal rallying a further more than 3.0% on the day, taking its run of gains since the start of the month to over 8.0%. XAG/USD prices came within a whisker of hitting the $27.00 per troy ounce level and, in doing so, hit their highest point since mid-June 2021. The US announced a ban on Russian energy imports and the UK announced a plan to phase out Russian oil imports by the end of the year, further triggering fears of Western sanction-induced global stagflation and supporting precious metals.

Gold came within a whisker of hitting record levels in the $2075 per troy ounce area on Tuesday. Given that spot silver still remains some 12% below its record highs from early 2021, there may be some room for catch-up. The next major area that the bulls will be watching is the Q2 2021 highs in the $28.70 area, some 8.0% above current levels. With no end in sight to the fighting in Ukraine and Western sanctions on Russia likely to continue to tighten in the days and weeks ahead, it remains premature to call the top of the broad commodity market rally.

Silver and other precious metals are thus likely to continue to receive healthy demand as both hedges against in inflation and as safe-haven assets. US Consumer Price Inflation (CPI) metrics on Thursday should serve as a timely reminder as to just how far behind the curve the Fed is when it comes to tackling inflation (interest rates just above zero and headline CPI nearing 8.0% YoY). With MoM inflation rates seen surging in the months ahead to reflect recent commodity price action, real interest rates in major developed are not seen rising any time soon, which should maintain a strong incentive to hold non-yielding assets like silver.