Silver slumps below $23.00 as Wall Street volatility index hits lows since February

Friday has been another ugly day for spot silver prices (XAG/USD). Shortly after 13:00GMT, the precious metal slumped from around the $23.20s to below the $23.00 level and then even briefly as low as $22.34. Silver has now recovered from extremes and trades back in the $22.70s, but nonetheless still trades with losses of more than 2.5% on the day, or over 60 cents.

Risk appetite hurts demand for precious metals

Seemingly triggering the abrupt downside move in silver (and gold prices) on Friday were headlines that the S&P 500 VIX (often referred to as Wall Street's "fear gauge") had fallen below 20.00 for the first time since February, or before the pandemic went global. Friday's drop in the VIX comes amid a continued improvement in wider risk appetite.

Despite it only being a half-day for US markets on account of a second of Thanksgiving festivities, US equity bourses have largely traded on the front foot and the Nasdaq composite index has even managed to rally back to all-time highs. A few positive news stories from overnight are likely helping boost sentiment; US President Donald Trump said that vaccines would begin being delivered next week, while he also confirmed that if the electoral college votes for assumed President-elect Joe Biden, he would leave the White House (in what might be the closest thing he is likely to say indicating that he accepts the result of the election).

More broadly, however, markets continue to seemingly shrug off near-term Winter virus risks in favour of focusing on an improving long-term picture. Stock markets, commodity markets and risk-sensitive currencies have rallied since the start of November amid an improving outlook for 2021 and beyond, given 1) good vaccine news (giving financial markets light at the end of the tunnel regarding the pandemic) and 2) Joe Biden’s victory in the US Presidential election, signalling a turning point for international relations towards more favourable global trade conditions. Meanwhile, the continued strong performance of the Asian economies (most notably China) will support struggling western economies through winter by at the very least keeping demand for industrial sector goods strong.

Looking ahead, as long as markets continue to see the world through a “glass half full” rather than “glass half empty” lens, precious metals may continue to fall out of favour, and silver could continue to advance towards September lows at $21.68.

XAG/USD key levels