XAG/USD spikes to more than two-month highs above $23.50 after week US data

• Spot silver spiked to more than two-month highs above $23.50 in recent trade following a week NY Fed manufacturing survey.
• The move cuts against higher US yields and a stronger US dollar, suggesting the gains may prove short-lived.

Spot silver (XAG/USD) prices spiked nearly 60 cents from under $22.90 to near $23.50 (more than two-month highs) in recent trade in wake of a much weaker than expected January New York Fed Manufacturing survey. The headline index slumped into negative territory for the first time since October 2020 versus expectations for a decline from 31.9 to 25.7, a reflection of Omicron’s short-term hit to business conditions. At current levels just below the $23.50 mark, XAG/USD is now trading higher by nearly 2.0% on the day, having at one point traded closer to 1.0% lower.

Silver’s recent rally, which has seen the precious metal rebound from its 21-day moving average at $22.80 and scorch above its 50-day moving average just under $23.20, cuts against the moves being seen in bond and FX markets. Bond market participants, unfazed by the weak NY Fed survey, have continued to push US yields higher with focus instead on increasingly hawkish Fed expectations. The 2-year yield has pushed above 1.0% for the first time since February 2020 and is up about 6bps on the day, whilst the 10-year is up about 8bps and trading around 1.85%, its highest level since January 2020. This move is being driven by upside in real yields (rather than inflation expectations), which would typically weigh on precious metals.

Amid the rise in US yields that has outmatched the moves in yields in other developed markets, the US dollar has been catching a bid and the DXY, overcoming initial post-NY Fed data weakness, has pushed back to weekly highs above 95.50. That makes dollar-denominated precious metals more expensive for the holders of international currency, weighing on demand, and would thus typically send silver prices lower. Higher real yields and a stronger dollar suggest the most recent push higher in spot silver may be short-lived. If intra-day/swing traders do take the opportunity to add short positions at elevated levels above $23.50, they will likely be targetting a rest of Tuesday’s and last Friday’s lows in the $22.80 area.