Silver lost almost 7% on November 9 as the precious metals sold off responding to the positive COVID-19 news. Investors interpreted that the news is good for the global economy. Daniel Pavilonis, RJO Futures senior commodities broker, told reporters:
“The initial reaction was that the stimulus may not be necessary. With a vaccine, we have a way to change the dynamic of the way everybody is living post-COVID. Maybe everyone can go back to work, or maybe there is a less economic risk. Maybe pent-up purchasing picks up.”
This latest price action has resulted in an unwind of the pandemic-era trades, according to Daniel Ghali, a TD Securities commodity strategist. He added:
“Vaccine is seen as opening the door to other assets that haven’t performed as well during the pandemic. The market is selling the winners and buying some losers. During the pandemic, gold and silver were popular investment haven vehicles.”
Silver moved in response to Pfizer Inc’s announcement that its experimental COVID-19 vaccine was over 90% effective. Currently, December Comex silver has seen a slight recovery, it was last trading at around $24.29, down 5.35% on the day.
Silver followed gold and the whole precious metal market down on November 9 as explained by LaSalle Futures Group senior market strategist Charlie Nedoss. After that significant selloff in the silver market, the technicals started to strengthen as noted by Nedoss.
Furthermore, gold’s ability to hold firmly onto the $1850 level has helped silver significantly.
“Silver hasn’t even taken out last week’s low. It is seeing some short-covering.”
Another notable reason why silver is not further down is its industrial component. Nedoss commented:
“Silver is holding on because of its industrial component and its uses. That’s the difference between gold and silver.”
A critical technical level to watch in the silver market is the 100-day moving average located at $23.59. If silver has the momentum to break that, it might plunge to $21.50. Notably, another important level to consider is $24.24.
“Technically, watch the day session close. The $24.24 level is a big mark.”
Bullish Sentiment Dominates
In general, this vaccine news does not dent the bullish environment for precious metals. Pavilonis said:
“Once we start to look at when this might be implemented. Are whether people are going to want to take the vaccine. It will be questionable.”
Additionally, Joe Biden winning the presidential race points to more bailouts in the future. Stimulus packages are still to be considered. Experts say that the vaccine does not mean that the world is out of the woods yet. Pavilonis explained:
“There has been a lot of damage done to the economy. Even with a vaccine, things are not going to get back to normal. The amount of money that has been printed is going to have an inflationary effect on things. Unlike quantitative easing, this is like money literally being printed up and given out. I think the move in the metal to the upside is not over.”
Silver can even surge to $30 more rapidly if a Democrat-sized stimulus package for the small and medium-sized businesses is eventually passed.
“The moves we saw today in stocks, we’ll see a move like this in silver on the upside if the bailout package passes.”
Taking the longer-term market development into context, vaccine news might prove to be a price-positive for precious metals. Ghali stated:
“Gold and silver are inflation hedge assets. As the vaccine is implemented, it will help the world recover, help some growth to re-enter into the status quo from the past. These are tailwinds for inflation expectations as higher growth elicits higher inflation expectations. And the Fed is not going to look to stem those inflation expectations. This is positive for gold and silver.”
Ghali concluded by saying that TD securities predict that silver will average $26 during Q4 and will then surpass $30 by the end of 2021. Silver is not only a precious metal, it is also an industrial metal. Thus, when the pandemic is suppressed, industrial activities will pick up which will underpin the rise in the silver market prices.
