Soaring bond yields create headwinds for precious metals



  • Ssilver prices fall about 1.6% as US Treasury yields hit multi-year highs
  • Investors are betting that the central bank tightening cycle will be much more aggressive than initially expected after the fedspeak falcon
  • In this article we analyze the key technical levels for XAG/USD

Most read: Gold Could Lose Its Shine as Fed Chair Powell Talks Bigger Rate Hikes to Tackle Inflation

Silver course (XAG/USD) plunged on Tuesday, led by bond market developments after the Federal Reserve committed to act quickly to restore price stability and signaled that it was prepared to increase borrowing costs by more than 25 basis points in the future if warranted.

During the last two sessions, the The US Treasury curve has shifted sharply upfollowing the Fedspeak falcon, with 2 and 10-year yields soaring to 2.18% and 2.38% respectively, their highest levels since May 2019. The promise to aggressively fight inflation also helped lift real yields, pushing the US 10-year TIPS to -0.57% from -0.71% a week ago. Against this backdrop, XAG/USD was down around 1.6% at 24.80 midday.

Unproductive commodities, such as silver and gold, could quickly fall out of favor if rates continue to rise and the US dollar remains supported due to aggressive commodity prices. central bank tightening, although it is important to note that this forecast partly depends on the geopolitical outlook.

In reality, the only reason we haven’t seen a major change in the fortunes of precious metals is because of the increased geopolitical risk premium and safe haven buying activity. The war in Ukraine, which has been going on for almost a month, poses serious headwinds to the global economy and could lead to “stagflation”. This uncertainty has prevented investors from substantially reducing defensive positions, limiting the recent corrective move observed in this space.

Either way, if geopolitical tensions ease and sentiment improves further, silver and gold could deepen their pullback initiated earlier this month as traders turn their attention to assets. riskier and higher return. On the other hand, if the hostilities in Eastern Europe Intensify, flows into safe havens could accelerate further, triggering a rally in precious metals despite rising yields.


At the time of writing, the money fell to key technical support ranging from $24.50 to $24.60. This area has been tested a few times over the past few days, but has held up, so we need to keep an eye on the price reaction around current levels for short term guidance. That said, XAG/USD breaks out and falls below this floor decisively in daily closing prices, sellers could launch an attack at $24.17, the 50% Fibonacci retracement of the 2022 rally. Further weakness, the next major hurdle lies at $23.51.

On the other hand, if buyers come back and silver pivots higher, initial resistance appears at $25.35. If the bulls manage to push the metal above this barrier, the price could be on the verge of retesting the 2022 high near $26.93.


Silver Price Chart Prepared Using TradingView


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—Written by Diego Colman, Contributor

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