Silver Price Analysis: XAG/USD supported above $25.00 but capped by 200DMA amid subdued start to week

Spot silver (XAG/USD) prices have spent Monday’s session consolidating within recent ranges, finding support at the $25.00 level, but failing to push towards the 200-day moving average just under $25.40. Consolidative conditions are not too surprising on Monday. The DXY is pushing on to further year-to-date highs and towards 94.50, but this is mainly due to weakness in the euro rather than broad USD strength, thus sparing precious metals. Meanwhile, the bond market picture is mixed, with long-term US yields up due to higher inflation expectations, while short-end nominal yields are flat and 5-year real yields substantially lower.

A much stronger than anticipated NY Fed Manufacturing index for November (coming at 30.9 versus forecasts for a rise to 21.6 from 19.8) is a good omen for US November data. Indeed, the release has been the only notable fundamental catalyst thus far on Monday (it triggered the rise in long-term US yields). For now, precious metals markets would rather bide their time and await the outcome of Tuesday’s October Retail Sales report. Traders also want more information on two key fronts with regards to the Fed; 1) how will Fed policymakers (who speak in droves this week) respond to the recent inflation surprise and 2) who will be nominated as the next Fed Chair? Reportedly US President Biden’s decision on the latter could come as soon as this week.

Chatter amongst analysts, market commentators and Fed watchers is that the bank should pivot towards accelerating the pace of asset purchases in Q1 2022 and signal intent to start hiking by the end of Q2 2022 at a minimum. Political pressures are growing on the Fed to do something about inflation, as President Joe Biden (and his VP Kamala Harris) see their approval ratings tank. If Fed members don’t sound sufficiently hawkish, precious metals could get another boost on rising inflation/fiat debasement fears. That could send spot silver above its 200DMA, which could open the door to extended upside towards $26.00 (the early August high).