Silver Price Analysis: XAG/USD remains under $22.00 level pre-Fed minutes releases as 21DMA caps upside

Spot silver (XAG/USD) prices were last trading just the south of the $22.00 level per troy ounce, with the 21-Day Moving Average at $22.04 still offering decent resistance and the precious metals also weighed amid a bounce from monthly lows in the US dollar in the run-up to the release of the minutes of this month’s FOMC meeting. Weaker than expected US Durable Goods Orders data for April, which showed a moderation of business investment at the start of Q2 probably as a result of hawkish Fed-induced tighter financial conditions, has helped XAG/USD recover from earlier session lows in the $21.70s, but silver still trades lower by about 0.7% on the day.

The impact of tighter financial conditions was also evident in housing figures released on Tuesday that showed a steep drop in US New Home Sales in April. However, the biggest factor seemingly holding back economic activity in the US economy remains the sharp rise in inflation since the start of 2021. So long as inflation remains elevated, the US central bank may be forced to look through economic weakness. Traders will be closely scrutinising the upcoming minutes release for any commentary on how the Fed views the trade-off between weaker growth and elevated inflation.

The minutes are expected to show that FOMC members stand firmly behind Chairman Jerome Powell’s plan to lift interest rates “expeditiously” back to neutral by the end of the year. Any debate over whether the Fed should then pause and assess, or continue lifting rates well into restrictive territory would be interesting. Preference for the latter (which would be hawkish) could well see the USD and US yields catch a bid, and this could weigh on silver.

Indeed, silver’s failure to rally above its 21DMA is a sign that recent bullish momentum since the middle of the month that has seen XAG/USD bounce from the mid-$20.00s has started to fade. Traders will also be watching remarks from Fed Vice Chair Lael Brainard from 1615GMT, who is likely to stick to the Fed’s script. Silver bears will be hoping that hawkish vibes return and send XAG/USD back to monthly lows in the mid-$20.00s.