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  • A risk-off tone during early Monday European trade saw USD bid and sent spot silver as low as the $23.50s.
  • But USD has since faded, allowing XAG/USD surged back and surpassed prior monthly highs at just above $24.40.

Spot silver (XAG/USD) prices were hit hard during the early part of Monday European trade; USD saw strong safe-haven demand amid rising Brexit concerns, enough to send the Dollar Index briefly back above 91.00 and as high as 91.24. This strength in USD weighed broadly on precious metals markets and sent XAG/USD from week open levels just under $24.20 as low as the $23.50s.

However, USD has since reversed most of Monday’s initial strength, allowing a broad recovery in precious metals in line with risk appetite more broadly. That has allowed spot silver to rally back not only to Monday open levels but beyond and onto fresh monthly highs above $24.50. As things stand right now, the precious metal trades with gains of around 35 cents on the day or 1.5%.

USD bears/precious metals bulls come surging back

USD’s rally during the European morning session was jumped on by USD bears eager to secure a bargain and DXY is now trading back in the red and in the 90.60s, just above last week’s lows just below 90.50. Though negative GBP flows as a result of adverse Brexit news might give USD some support, most analysts agree that market conditions remain broadly USD negative.

More specifically, with inflation expectations back on the rise globally as hopes rise for a better global economy in 2021 and beyond (amid an end to the pandemic due to vaccines and a return to “normality” regarding international trade and relations under a Biden administration), US real interest rates (nominal interest rates – expected inflation rate) have moved lower again, undermining the attractiveness of USD vs its peer.

Importantly, low real interest rates on USD denominated debt investments make precious metals particularly attractive, and with the Fed keen to keep interest rates highly accommodative for the foreseeable future, this support is unlikely to be going anywhere any time soon.

That means that while risk on news (vaccine updates and a potential deal on US fiscals stimulus) might put the likes of silver and gold on the back foot, dip buyers are likely to stick around. Indeed, both of these factors could arguably be seen as precious metal bullish anyway as they lift inflation expectations, which further compresses real interest rates.

XAG/USD surges above recent ranges

Spot silver prices have convincingly broken to the upside of its range that had prevailed up until now during December. Prior to Monday morning, the gains had been mostly capped at around $24.30. But since rebounding strongly from the 2 December low at $23.55, the precious metal has surged above this resistance and even surpassed the 20 November high at $24.53.

To the downside, the previous top of the old December range at around $24.30 ought to offer strong resistance, as should its recently surpassed 21 and 50-day moving averages at $24.00 and $24.12 respectively.

To the upside, the main area of resistance to watch out for will be a long-term downtrend linking the early August high at just below $30.00, the 1 September high at just under $29.00 and the 9 November high at $26.00, a downtrend which is likely to come into play as resistance between roughly $24.70 and $24.80.

XAG/USD key levels