The fall of silver continues, $ 25.00 in sight

• The strong performance of the US dollar weighed on silver spot prices on Tuesday.
• The precious metal has continued its decline from highs around $ 26.50 and targets a test of $ 25.00

Silver Spot Prices (XAG / USD) have been under continuous pressure since the start of US trading hours, mainly pressured by a rally in the US dollar that has seen the dollar index (DXY) rise from lows just above 90.00 to reach the lowest level. high at 90.65. It should be noted that precious metals such as silver have a strongly negative correlation with the US dollar.

As it stands, the precious metal is trading at a loss of close to $ 1.0 for the day, or more than 3.5%, with XAG / USD falling to lows just north of the $ 25.00 level from the Asian session highs. Pacific above $ 26.50. If the USD continues to strengthen, a test of the $ 25.00 level and Monday’s lows just below it is highly likely.

USD recovers, silver suffers

Lean pre-Christmas conditions and year-end position adjustment flows could certainly be factors influencing the strength of the US dollar on Tuesday, but most analysts are more likely to point to current concerns regarding to the spread of the new Covid-19 mutant strain in the UK and the ongoing Brexit. This anguish works in favor of the US dollars. As noted above, this is working against precious metals like silver, which are negatively correlated to the dollar.

Other factors to consider for precious metals, such as real returns and inflation expectations, have sent much less decisive signals; The nominal yield curve of the US Treasury has seen a pronounced bullish flattening (which tends to be positive for precious metals) and the 10-year TIPS yields remain at suppressed levels around -1.03% (also support for precious metals). But 10-year equilibrium inflation expectations continue to fall from last Friday’s highs of 1.96%, and are now at 1.92% (a negative precious metal).

If the Covid-19 situation dramatically worsens (that is, imagine if current tests by Pfizer / BioNTech show that their vaccine is ineffective against the new mutant strain), the significant risk streams are likely to be triggered further. The demand for dollars is likely to generate a further drop in inflation expectations, which could be strongly negative for precious metals in the short term. Precious metal bulls will be comforted to learn that a highly dovish Fed will be there to keep real returns at or at least near all-time lows, which should make long-term precious metal investors happy to hold. .

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