Silver bounces from $23.00, nurses modest recovery amid soft US dollar conditions

• Silver has bounced from a test of the $23.00 level, the precious metal currently trading around $23.40.
• USD weakness seems to be offering some support to the precious metal complex on Wednesday.

Spot silver prices (XAG/USD) are making a modest comeback on Wednesday as the precious metal looks to snap Monday and Tuesday’s losing streak that has taken it from Monday open levels above $24.00 to lows below $23.00. Currently, the precious metal trades with gains of around 10 cents or 0.5%, having bounced from the $23.00 level to around $23.40.

Silver supported as USD struggles

USD weakness is finally coming to the aid of precious metals on Wednesday; typically, precious metals such as gold and silver have a negative correlation to the USD, which has fallen from highs around the 92.80 mark to as low as 92.00 in recent trade.

Goldman Sachs attributes the lack of appetite for precious metals despite the weakening USD on Monday and Tuesday due to the fact that, despite significant rallies seen in other asset classes, there was a lack of any increase to breakeven inflation expectations, which the bank notes drove gold higher in late spring/summer.

But the usual correlation appears to have reasserted itself on Wednesday. USD has been on the backfoot amid unfavourable conditions; risk appetite is being supported by vaccine optimism, (negative for safe havens like USD) as well as the fact that the US economy seems to be doing better than expected in Q4, but not by enough (see Wednesday’s US jobs data) to allay FOMC concerns regarding the difficult incoming winter during which time the Covid-19 outbreak is expected to continue to hurt the recovery. While one might argue that growing concerns over the near-term outlook for the US economy might be a USD positive given its safe-haven appeal, if it means more accommodation from the Fed (perhaps via an expanded QE programme in December), then this is more likely to be net USD negative.

Silver tests long-term uptrend

XAG/USD briefly slipped below a long-term uptrend linking the 24 September lows at $21.68 and the 29 October highs at $22.60 on Tuesday and Wednesday but has recovered back above in recent trade.

If the bears do regain control and send silver back into the red, these will be the most important levels of support to watch out for in the immediate sense. Below the 24 September low is the 4 July 2016 high at $21.15.

To the upside, the most notable area of resistance is a downtrend linking the 7 August, 1 September and 9 November highs, which is likely to come into play as resistance just ahead of $24.50.  

XAG/USD eight hour chart