- Silver prices have already experienced significant volatility on Monday, swinging highs below $ 27.50 and lows below $ 25.00.
- Markets have been rocked by the latest Covid-19 developments in the UK.
Silver prices (XAG / USD) have experienced significant volatility on the first trading day of the week as markets assimilate the latest news on Covid-19 from Europe. In early Asia Pacific trading, silver experienced significant safe-haven demand and rallied from opening levels near 26.00 “to a high of $ 27.41, before reversing course in the middle and falling to lows below $ 25.00 mid-European morning session Since then, XAG / USD has rallied above the $ 26.00 level and is trading just over 1% for the day.
UK’s New Covid-19 Strain Shakes Global Markets
The UK government announced that large portions of London and the South East of the UK will enter a new Level 4 lockdown, which is similar to the national lockdowns seen in the first half of 2020 and November as the area struggles to contain the outbreak of a new, more virulent strain of Covid-19 that UK scientists fear could increase the virus’s reproduction rate by more than 0.4 (in the UK, the R rate was estimated last week between 1.1 and 1.2 , which implies that it is the number of people that each infected person spreads the virus as well). Much of the recent increase in cases in London and the South East is attributed to the spread of this new strain and several European governments over the weekend took swift action to ban inbound flights from the UK. However, since cases of the new strain of the virus are already being detected in Italy, it could be too late for the continent to avoid an outbreak.
Either way, the bad news, coupled with another weekend in which the UK and the EU failed to reach a Brexit deal, has rocked global markets, with equities, risk-sensitive currencies, oil markets Crude oil and industrial commodities feeling the brunt of risk aversion, while safe-haven assets like the USD have performed well. Precious metals have seen two-way price action, caught between their obvious safe-haven characteristics and a stronger dollar.
Although a stronger US dollar will be a challenge for the XAG / USD and XAU / USD pairs, recent developments are likely to be positive for both. On the one hand, if this new strain of Covid-19 continues to spread in the UK, Europe, and indeed other parts of the world like the US, it is likely to encourage authorities to enact lockdown measures. stronger and will likely prompt the major global central banks (ECB, BoE, Fed) to further monetary easing (most likely to come as more QE); Inflation of the money supply has proven to be very positive for precious metal prices in recent years.
In the meantime, mass vaccination programs will continue, which should contain any risky drop in equity / commodity prices and the dollar on the rise, given that there is still “light at the end of the tunnel.” Once the major economies hit the point of herd immunity (which many expect to occur in the second half of 2021), the economic recovery may start to flourish again and all that stimulus from the central bank, which won’t be immediately withdrawn, it is likely to contribute to higher inflation. This will keep real interest rates low, which will keep the precious metals attractive.
Technical levels
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