Silver Price Analysis: XAG/USD faces downward rally after reachingm multi-month highs, rising yields
- The XAG/USD is experiencing a more than 3% downward rally, after soaring to near $26.00.
- A stronger US dollar amid escalating tensions between Israel and Hamas weighed on the metal.
- US bond yields are seeing nearly 2% increases on the day.
- The US will report key employment data throughout the week.
The XAG/USD pair witnessed a downward rally in Monday's trading session, currently trading around $24.50 as bulls consolidate gains, which took the price to a high since May of $25.95 earlier in the session. The key movers of the day pushing Silver lower are the rise in US yields ahead of key employment data from the US. In addition, the intensification of the geopolitical conflict between Israel and Hamas has benefited the USD, and as global tensions rise, investors are resorting to the green haven.
In line with that, US Treasury yields are rising, seeing more than 2% increases. The 2-year rate is at 4.64%, while the 5-year and 10-year rates are trading at 4.22% and 4.28% respectively. This yield surge negatively affects the price of non-yielding metals, as US Treasury bond yields are usually perceived as their opportunity cost. That said, the dovish rhetoric on the Federal Reserve (Fed) dominates markets, recently pushing the price higher and the US bond rates lower. The short-term focus is now on employment data, which will determine the trajectory of the bond market, as the bank remains data-dependent and left the door open for further tightening.
On Wednesday, investors will pay close attention to the Automatic Data Processing (ADP) Employment Change report from November, and on Thursday, weekly Jobless Claims are due. On Friday, the spotlight will be on the U.S. Bureau of Labor Statistics as they release crucial data on the Unemployment Rate and Nonfarm Payrolls, significant indicators of the US labour market's health closely monitored by the Fed. Its outcome may affect the expectations of the next decisions and hence may trigger volatility in bond markets and in the metal’s price.
XAG/USD levels to watch
The daily chart indicators reflect indications of a bullish consolidation in the short term to correct overbought conditions. The Relative Strength Index (RSI), projecting a negative slope while still within the positive territory, indicates a potential pullback or consolidation phase as the bulls take a breather after jumping to nearly $26.00 earlier in the session, its highest since May. In addition, the Moving Average Convergence Divergence (MACD) displays rising red bars, denoting that selling pressure is increasing.
However, as the price is trading above the 20, 100, and 200-day SMAs, the longer-term buying momentum is significantly stronger, suggesting that despite short-term interruptions, the bulls maintain overall control.
Support Levels: $24.00, $23.76 (20-day SMA), $23.00.
Resistance Levels: $25.00, $25.50, $26.00.
XAG/USD daily chart