XAG/USD pressued in consolidation zone on vaccine hopes
|- XAG/USD under pressure as the greenback corrects from 2.5-year lows.
- Markets attention is now turning to the Federal Reserve.
- The announcement of three viable vaccines weighs on safe-havens.
XAG/USD is currently trading at $24.0125 and under pressure, losing 0.33% on the day at the time of writing.
The commodity has traded between a range of $24.2834 the high to a low of $23.7428, knocked from the tops on a correction in the US dollar.
The precious metals have been under pressure with rising real rates as a result of the vaccine breakthrough and in the immediate aftermath of the US election.
Britain will begin inoculations next week, while the US Food and Drug Administration will hold its own advisory committee meeting next week that could determine when treatments are approved for use in the country, Reuters reported.
''We see convincing evidence that the most recent meltdown in prices has overwhelmingly been driven by pain,'' analysts at TD Securities explained.
''Our positioning nowcast model flags that technicals have been the dominant theme driving positioning changes of late, which ultimately suggests that prices crossed a pain threshold and sparked a capitulation.''
What commodity markets will now be focussed on is the next Federal Reserve meeting.
The Minutes of the November 4-5 FOMC meeting has sparked speculation that the Fed could be willing to make further use of its balance sheet should the economy necessitate this.
So far, real rates have not risen further and there are expectations of an easier Fed, with the Chair, Jerome Powell recently calling the US recovery "extraordinarily uncertain" as the rise in Covid-19 cases continues to take a heavy toll on the economy.
''The past three consecutive weeks of Initial jobless claims data in tune with the November release of the ADP private payrolls data suggest that the momentum in the economy is being lost and, given the delays by Congress in agreeing further fiscal stimulus, speculation has been circulating that the Fed will be pressured into stepping up to the plate,'' analysts at Rabobank explained.
In an inflationary environment, coupled with a weak dollar and the progress in fiscal stimulus talks, there is an underbelly of appetite for precious metals.
''We expect that a continued economic recovery will once again fuel investment appetite,'' the analysts at TD Securities argued, citing the precious metals as an inflation-hedge asset.
''In fact, 5y5y inflation swaps continue to suggest that long-term inflation expectations are rising, which should ultimately fuel the drive for capital to shelter itself.''
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