- Spot silver has recovered from earlier sub-$23.80 lows and regain a $24 status.
- The precious metal continues to look rangebound and trades close to its 21 and 50DMAs.
Spot silver prices have been indecisive on Thursday, trading either side of the $24.00 level and within recent ranges. At present, XAG/USD trades with very minor losses of around 3 cents, or slightly more than 0.1%.
What next after the dip was bought?
Traders aggressively bought the late-November dip in Silver prices, sending XAG/USD from lows on 30 November beneath $22.00 to back above $24.00 in less than two days, around which spot prices continue to range. Markets are clearly weighing up what is next for the precious metal.
Analysts are weighing up the prospects for the return of inflation in 2021 and what this would mean for real interest rates and global central bank policy. A faster than expected return of inflation that doesn’t trigger concern at central banks eager to make up for years of missing their inflation targets is likely to be a positive for precious metals, given that it would likely keep a real-yields low (given that central bank would be leaving interest rates at zero and so the gap between interest rates and inflation would widen). This makes precious metals a more attractive place to invest money. Conversely, if inflation stays sluggish, continued stimulus and money supply expansion from major global central banks is also likely to benefit precious metals, which benefit as a hedge against inflation.
Perhaps the major threat to precious metals would come from earlier than anticipated monetary tightening from global central banks. If global central banks were to reduce the sizes of their balance sheets and raise interest rates earlier than expected, this would dampen inflation expectations and thus hurt the attractiveness of precious metals. The likes of gold and silver are likely to be sensitive to this story as the economic story plays out over the coming months.
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