Silver Price Analysis: XAG/USD remains resilient in $26.00 area despite continued US bond yield rally

Despite the rally in US yields across the curve entering its fourth day and yields recovering broadly back to their pre-Russia invasion of Ukraine levels, demand for precious metals has not been substantially dented. Spot silver (XAG/USD) prices have traded in choppy fashion once again and, after earlier in the day were probing sub-$25.50 per troy ounce weekly lows, have recovered to the $26.00 area. XAG/USD’s ability to hold above $25.50 this week despite a roughly 30bps rise in US 10-year yields (meaning a much higher opportunity cost of holding non-yielding assets like silver) shows that, right now, yields are not the major driver for precious metals

Though off earlier weekly peaks, energy prices remain very choppy and elevated near multi-year highs, keeping stagflation fears alive and supporting demand for inflation protection, which precious metals like silver are deemed as offering. The fact that the latest US inflation reading showed headline Consumer Price Inflation nearing 8.0% YoY (as expected) in February underscores this narrative. Economists expect MoM rates of inflation to sour in the coming months as the effects of the Russo-Ukraine war and related Western sanctions against Russia are felt.

For now, spot silver prices are likely to remain caught with recent $25.50-$27.00ish ranges as traders assess geopolitical developments. Hopes for swift de-escalation of the Russo-Ukraine war haven’t materialised at this point, though high-level officials from both sides are expected to continue with talks in the months/weeks ahead. In the meantime, risks for energy and other commodity prices seem tilted to the upside as global markets come to terms with Western sanctions on Russia, as well as Russia’s counter-sanctions. That, combined with an expected surge in inflation rates in major economies, suggests demand for inflation protection will remain robust. Q2 2021 highs in the $28s continue to look there for the taking for silver in the coming weeks.