Silver Price Analysis: XAG/USD stabilises in mid-$23.00s, but fails to reclaim 200DMA or $24.00 level

Spot silver (XAG/USD) prices have recovered some poise on Tuesday after dropping more than 6.0% between last Thursday and Monday. XAG/USD currently trades flat on the day near the $23.60 per troy ounce mark, though failed in an earlier attempt to push back above the 200-Day Moving Average at $23.85 and test key resistance around $24.00.

Precious metal markets owe their stabilisation on Tuesday to a continued drop in US and global bond yields as investors fret about global growth prospects, but continue to face difficulties in staging a rebound as a result of the strong US dollar. The US Dollar Index (DXY) rose momentarily above the 102.00 level for the first time since March 2020 in earlier trade, primarily as a result of weakness in the euro and pound.

Traders are citing a combination of still very ropey broader market risk appetite conditions (which tend to benefit the safe-haven buck) and expectations that the Fed will outpace many of its major G10 central bank peers (like the ECB and BoE) in terms of monetary tightening as supporting the buck on Tuesday and in recent sessions.

While weakness in risk appetite would traditionally be seen as a positive for the likes of silver and other precious metals, a stronger US dollar makes USD-denominated precious metals more expensive for foreign buyers, thus reducing demand. If the buck is strong as a result of Fed tightening expectations, that’s a double whammy, as higher interest rates raise the “opportunity cost” of holding non-yielding assets like silver, further reducing demand.

Technicians might interpret XAG/USD’s failure to retake its 200DMA as a bearish sign moving forward. US Q1 GDP and March Core PCE data out later this week is likely to underline expectations that Fed tightening is on autopilot for the rest of the year, and could further undermine silver as the week drags on. Longer-term bears will be eyeing an eventual pullback all the way lower to support in the form of the 2022 lows in the $22.00 area.