XAG Pressured by Rising Dollar, Bond Yields

Overview

Silver (XAG) prices hit a seven-week trough on Monday, with spot silver registering a mild ascent of 0.1% at $22.60 per ounce. This slide coincides with the U.S. Comex silver futures, which marked a 0.4% dip to $22.99. This descent in silver prices seems to be in response to the dollar’s rise and the upswing in U.S. bond yields, which have been amplified by recent data. Friday’s data revealed that producer prices for July exceeded expectations, with the cost of services soaring at its quickest rate in nearly 12 months.

U.S. Bond Yields Bolster Dollar

U.S. bond yields rose significantly, with the 10-year Treasury note escalating almost 8 basis points to 4.16%, and the 2-year Treasury note increasing over 7 basis points to 4.895%. These yield gains have bolstered the dollar, positioning it at its peak since July 7. Additionally, the producer price index inched up by 0.3% in July, surpassing the anticipated 0.2% monthly rise.

Consumer Price Index Rises Annually

Furthermore, last week’s consumer price index showcased a 3.2% annual surge in July, just a smidge below the anticipated 3.3%. It’s noteworthy to mention the core CPI which, when omitting the fluctuating food and energy sectors, shot up by an annual 4.7%.

Traders Anticipate Hawkish Fed Minutes

The predominant market sentiment leans towards the dollar’s potential to climb higher. This is primarily due to the anticipation of the U.S. Federal Reserve’s hawkish stance in their upcoming July meeting minutes, combined with the belief that bond yields and commercial rates are poised to rise. Consequently, the appeal of holding non-interest-bearing silver diminishes as its opportunity cost increases.

Silver Faces Bearish Pressure Ahead

In the short-term, silver (XAG) is anticipated to face intensified pressure, potentially tumbling to lows of $22.28 or even $22.00. This bearish forecast for silver is further reinforced by the diminishing gold (XAU) prices and speculator data from COMEX revealing a cut in their net long position.

Technical Analysis

The current 4-hour price for Silver (XAG) stands at $22.62, slightly up from its previous 4-hour price at $22.58. This minimal upward movement places it below both the 200-4H moving average of $23.74 and the 50-4H moving average of $23.17, indicating a bearish trend. The 14-4H RSI is at 36.03, suggesting weakened momentum but not entirely in the oversold territory. The current price is trading inside its main support area between $22.70 and $22.28, making it crucial to observe if it holds or breaches this support. Given the overall data, the market sentiment for Silver (XAG) is currently bearish.