Silver battles for space in the $23 area as USD demand resurges

  • Silver is under pressure as market flips pro USD on safe-haven demand
  • The spread of COVID-19 and US election uncertainty keeps investors sidelined.

At the time of writing, XAG/USD is trading at $23.28, down some 0.3% having travelled from a high of $23.56 to a low of $22.56

The US dollar is bid as people are reacting to COVID cases that are spiking as well as the concerns that additional US economic stimulus has not been forthcoming.

With COVID-19 cases surging across Europe, yesterdays confirmation that France will require people to stay at home for all but essential activities from Friday has weighed on risk sentiment.

Germany will shut bars, restaurants and theatres from Nov. 2 until the end of the month as well and investors are seeing a repeat of a stronger USD amid haven demand.

The deterioration in the economic backdrop has seen the USD record its biggest gain in five weeks and with a few days to election day, speculators aren't ready to stick their necks out.

''The event-risk is keeping money managers on the sidelines — a context which is seeing low volume and aggressive flow combine into sharp price action,'' analysts at TD Securities said.

''With investment demand on pause and physical demand still lacklustre, it didn't take much in terms of global macro forces to send prices lower. However, investor behaviour is synonymous to a 'fight, flight or freeze' response — the uncertainty is keeping money on the sidelines, and few bids in the market,'' they added.

The market sees a Blue wave

Looking ahead, the market sees a landslide Biden victory which, until now, has underpinned precious metals.

Vice President Biden remains an 88% to 11% favourite over President Trump in the fivethirtyeight model.

The Democrats also remain favourite to gain control of the Senate (75% chance), though the number of seats is more uncertain.

However, If the Nov. 3 election doesn't offer a clear result, legal battles and protests likely will heighten herd anxiety further weighing on the real economy and potentially keep the US dollar elevated.

Political animosity is a potential derailment factor for a near-term fiscal stimulus program.

''Short-term positioning and mobility models point to a modest USD discount, but the USD can still drop 2% (and more into year-end) if current polling and expectations prevail on a swift election resolution,'' analysts at TD Securities argued.

Markets, however, are not ruling out a contested outcome.

''A tight, uncertain Presidential result should be risk-off, bull flattening the curve, while the Senate results will be needed for the market to price in the extent of fiscal easing.

If Republicans keep the Senate, a contested Presidency may not matter as much for markets since it will be a split government,'' the analysts at TD Securities added. 

Silver levels

The weekly wick is expected to be filled in on the lower time frames which offers a bearish bias below the support structure.

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