XAG/USD hits 2+ month highs above $23.50 after US data for the week

  • Spot silver hit more than two-month highs above $23.50 in recent trading after a week of manufacturing inquiry from the New York Fed.
  • The move comes against higher US yields and a stronger US dollar, suggesting the gains may prove short-lived.

Silver spot prices (XAG/USD) climbed nearly 60 cents from below $22.90 to near $23.50 (more than two-month high) in recent trading, following a much weaker than expected New York Fed manufacturing survey in January. The overall index fell into negative territory for the first time since October 2020 versus expectations for a decline from 31.9 to 25.7, reflecting Omicron’s near-term impact on trading conditions. At current levels just below the $23.50 mark, XAG/USD is now trading nearly 2.0% higher on the day, having at one point been closer to 1.0. % less.

Silver’s recent rally, which saw the precious metal bounce off its 21-day moving average at $22.80 and break above its 50-day moving average just below $23.20, goes to the against the movements observed in the bond and foreign exchange markets. Bond market participants, oblivious to the weak New York Fed survey, continued to push US yields higher, focusing instead on increasingly hawkish Fed expectations. The 2-year yield rose above 1.0% for the first time since February 2020 and is up around 6bp on the day, while the 10-year is up around 8bp and trading around 1 .85%, its highest level since January 2020. This movement is driven by the rise in real yields (rather than inflation expectations), which would generally weigh on precious metals.

Amid rising US yields that outpaced yield moves in other developed markets, the US dollar caught an offer and the DXY, overcoming initial weakness in post-NY Fed data, pushed back to weekly highs. above 95.50. This makes dollar-denominated precious metals more expensive for holders of international currencies, weighing on demand, and would therefore generally depress silver prices. Higher real yields and a stronger dollar suggest the most recent surge in spot silver may be short-lived. If intraday/swing traders take the opportunity to add short positions at high levels above $23.50, they will likely be targeting a remnant of last Tuesday’s and Friday’s lows in the 22 area, $80.

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