XAG / USD rallies above key $ 22.60 resistance area as Powell offers few surprises

  • Silver rallied alongside other asset classes recently hit by the Fed’s hawkishness after Powell’s remarks came as no surprise.
  • XAG / USD rallied around the $ 22.75 area erasing its 21DMA and key near-term resistance at $ 22.60.

The failure of Fed Chairman Jerome Powell to further fuel the fire regarding the market’s recent upward revision of Fed policy expectations appears to have been seen as a green light for some reversal of prices. recent movements. Powell’s remarks were very much in line with the content of last week’s December 2021 meeting minutes, with Powell endorsing the need for the Fed to raise interest rates and begin the process of quantitative tightening by 2022. In response to his remarks made before the Senate Banking Committee at its nomination hearing, US equity markets benefit from a rally led by tech / growth stocks, US yields are falling and the US dollar is under pressure.

Given their negative correlation with the dollar and real returns, the net result of the precious metals markets has been positive, with silver spot prices (XAG / USD) currently rising more than 1.0% on the day. Spot prices had struggled to climb back above their 21-day moving average of $ 22.60 from the perspective of Powell’s testimony, but have since moved above the $ 22.75 area. In doing so, cash also managed to clear key resistance at $ 22.60 in the form of recent lows from the start of last week and the previous week.

Some strategists had warned that recent moves in US real yields had been overstated and Tuesday’s retracement was late. As a reminder, US 10-year TIPS yields almost reached -0.70% on Monday, compared to -1.1% at the start of the year. On Tuesday it came down to less than -0.80%, with an even larger drop seen that day for 5-year TIPS yields. Lower real returns lower the opportunity cost of holding unproductive precious metals, hence the negative correlation. But from a longer-term perspective, it seems likely that as the Fed unwinds its stimulus through rate hikes and quantitative easing throughout the year, the risks are tilted to the rise. This could mean that traders continue to view XAG / USD as a sell off on rallies.

This would be especially the case if the US dollar, which weakened following Powell’s remarks probably as a result of the position adjustment, began to strengthen significantly. Speculators have built up strongly long positions in the dollar in recent weeks, so a further decline in the dollar as some of the weaker hands are flushed out could see the dollar continue to fall. But any weakness in dollar / real returns fueled by a return to recent highs in the $ 23.50 area can be seen as an attractive short term entry by longer term silver bears.

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