Silver: XAG/USD sees new YTD low as selloff continues

NEW YORK (Feb 28) Despite an attempted rally early last week, Silver (XAG/USD) continues to be immersed in a strong selloff amidst the US dollar’s recovery from 10-month lows. The precious metal bounced off from its 100-day moving average, just below the $22 mark, on Tuesday and Wednesday last week and proceeded to resume the downtrend that has been in place since the beginning of February. 

The selloff intensified on Friday as the Fed’s preferred measure of inflation came in above expectations. Both Core (4.7%) and Headline PCE Price index (5.4%) came in higher than the previous month, highlighting that the disinflation process is imperfect and price pressures are more stubborn than originally thought. Personal spending data in the US also showed a rise in January from the previous month and above expectations which, alongside other positive data like the Michigan consumer sentiment, strengthened the belief that a resilient US economy will allow the Fed to keep to its hawkish path for longer. 

Precious metals benefit when investors fear a looming recession 

The recent gains in precious metals, most notably gold but also silver, were backed by beliefs that a slowing economy would give way to the end of rate hikes by the Fed, and even possibly a few cuts before year-end. The economic data from December backed this view, which led investors to believe that the US economy was struggling, as CPI, PPI, retail sales, and industrial production all fell well below expectations.

The change in expectations about the future of the economy given the sudden and unexpected pickup in economic data has left markets confused for the past few weeks, and those assets that were performing best during the time when investors believed a recession was on the cards - like gold and silver - are now suffering the most.

Capital.com