- Silver prices sold off on Friday as risk appetite elsewhere continued to improve, with XAG/USD dipping below $25.00.
- But silver continues to trade well within recent ranges as traders monitor geopolitical developments.
A strong end to a strong week for US stocks (and the world) has seen safe-haven silver come back under selling pressure on the last day of the week, despite US yields long-term are lower and the shape of the curve intermittent warnings of recession. Silver (XAG/USD) It was last down nearly 2.0%, having retreated from $25.40 to current levels around $24.90, meaning the precious metal is now back below its 21-day moving average.
While geopolitics remains the main driving force in the market right now, as traders/market participants weigh the prospect of a potential Russia-Ukraine peace deal, the Fed has also been a big talking point this week. Fed policymakers went into effect on Friday, with James Bullard and Christopher Waller lending their support for an aggressive rate hike cycle that would see rates well above so-called “neutral” by the end of the year, while other speakers from the Fed were a bit more measured.
Dovish comments from Bullard and Waller seemed to boost the market’s implied probability of a 50bps hike at the next Fed meeting, which could have weighed on interest rate-sensitive precious metals like silver. It certainly seemed to drive short-term US yields higher, with the 2yr yield rising 4bps to return above 1.95% and pointing to a test of previous multi-year weekly highs at 2.0%. . Higher yields can hurt demand for underperforming precious metals by raising the perceived opportunity cost of holding them.
But, as noted, the US curve is now flashing recession warning signs. 10-year yields fell 5 bps excluding Friday, bringing the 2-year 10 spread below 20 bps. When the 2yr and 10yr spread turns negative, this has historically been a reliable indicator of an incoming recession in the next year or two, and fears about this could encourage some safe haven demand, which could ultimately benefit silver.
Ultimately, from a technical perspective, silver’s price action on Friday has not been very significant. At current levels near $24.90, XAG/USD is near the midpoint of the $24.50-$25.50 range that has prevailed in recent days. A break lower next week, perhaps if broad risk appetite continues to improve, would open the door for a rally to the 50 and 200 DMAs, which are located near $24.00.
Technical levels
Source: Fx Street
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