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  • Precious metals are tanking as the US dollar collects a safe-haven bid. 
  • Weak hands in gold and silver have started to collect their profits. 
  • The longer-term outlook for precious metals remains bullish. 

The price of silver has fallen hard alongside its sister metal, Gold. 

Gold is down 1.68% at the time of writing, or some -$32.41c/oz while silver has fallen by over 4%.

The moves in the market stem from ongoing uncertainty surrounding the spread of the coronavirus, stimulus measures, the US elections and ultimately, world growth prospects. 

The US, in the near term, has started to show signs of a recovery in this week’s bullish correction, flattening out the bearish daily channel in the DXY:

Eurozone recovery under scrutiny

The move in the DXY has a couple of elements to it. 

1. Safe-haven flows at times of uncertainty have be known to support the greenback. 

2. The euro, which makes up around 58% of the index’s weighted geometric mean, and the single currency is under pressure and scrutiny. 

It is true that there has been an air of optimism around the global economic recovery and just today, the G20 draft communiqué released a statement saying that the economic outlook is less negative.

Additionally, the G20 communiqué said the global economic activity showing signs of recovery and that positive impacts of significant policy actions are starting to materialize.

Also, the latest Chinese trade data highlighted that the continued robust recovery in the Chinese economy remains on track.  

However, when it comes to euroland, the sentiment is not so great. 

The latest business confidence survey for Germany, in the ZEW, highlighted the confluence of market concerns regarding rising covid-19 cases in Europe in addition to Brexit and election uncertainty in the US.  

This is significant because it comes at a time when the market is already positioned very long of the single currency and the data are suggesting that the single currency could now be vulnerable.

”Covid-19 related restriction have been tightened significantly in recent days in the Czech Republic, England, France, Italy and Spain. Consequently, the market has started to question the economic impact of the second wave,” analysts at Rabobank explained. 

Moreover, the analysts added, ”investors are already started to evaluate not just the economic impact of the latest round of covid-19 but also whether it will lead to any further discussion between leaders regarding the Recovery Fund. Already disbursements from Fund may be delayed over disagreements about adherence to democratic standards.”   

If the euro comes undone, then the US dollar is going to be stronger and that is problematic for the precious metals bulls in the near term.

Stimulus to support precious metals 

Meanwhile, the confluence of uncertainty surrounding stimulus and treatment/vaccine newsflow will continue to whipsaw the markets, and potentially more so in precious metals.

However, analysts at TD Securities reiterate that the long precious metals is likely agnostic to the election outcome, and bulls need not look too far on the horizon to expect a large-scale fiscal deal.

”In fact, with both the Trump and Biden agendas estimated to cost between $5.0T and $5.6T over the next decade, both plans would provide substantial tailwinds for the long gold trade,” the analysts explained.

”Barring a split government outcome, both administrations are likely to push through a large-scale fiscal deal in no time that would help de-bottleneck the real rate suppression, lifting precious metals in the process.

That being said, we expect that a Blue Wave would lead to global reflation, which would be the most positive outcome for gold bugs,” the analysts optimistically argue.

Silver levels