Silver eyes $68 as Fed rate-hike bets ease, says Mirae Asset ShareKhan

Silver price outlook: Praveen Singh of Mirae Asset ShareKhan said that spot silver is expected to consolidate its gains after rising a whopping 12 per cent last week.

Disclaimer: This article is written by Praveen Singh, head of commodities at Mirae Asset ShareKhan. Views expressed are his own. Readers' discretion is advised.

 

Silver: Seen consolidating with an upward bias

 

Buoyed by receding probability of Fed rate hikes, improving ETF flows and pullback in oil prices, spot silver rose to $66.79 -- highest since June 22-- on August 11. Since then, the metal has declined on profit booking as the July US CPI matched the estimates.  At the time of writing this article on the night of August 13, the white metal was trading at $64.73, down 0.90% for the day.

 

Data roundup:

 

Much-awaited July US CPI report showed a disinflationary trend holding as headline CPI edged lower from 3.5 per cent in June to 3.4 per cent in July, trailing the estimate of 3.5 per cent. Similarly, core CPI cooled from 2.6 per cent in June to 2.5 per cent (forecast 2.5 per cent). Month-on-month readings of both core and headline CPI inflation were subdued and matched their respective estimates.

 

US PPI cooled from 5.5 per cent Y-o-Y in June to 4.7 per cent in July and trailed the estimate of 4.9 per cent. Core PPI rose 4.2 per cent in July vs the forecast of 4.1 per cent and June data of 4.7 per cent. Core PPI was up 0.2 per cent M-o-M in July, lower than the forecast of 0.3 per cent and the upwardly revised 0.4 per cent M-o-M increase noted in June. Headline PPI was steady; thus, falling short of the expected 0.2 per cent rise. UK's Q2 GDP grew at an annualised rate of 1.2 per cent vs the estimate of 1.1 per cent and the prior growth rate of 0.9 per cent.

 

Geopolitics and oil:

 

Although Pakistan said that the US and Iran were close to a deal on Hormuz that will lead to a partial reopening of the Strait, the situation remains unclear as Iran seeks concessions from the US in exchange for opening the Strait of Hormuz. The conditions stated by Iran include reparations for war damages and unfreezing of Iranian assets. The US President Trump, in turn, has called for compensation for war damages, the killing of US soldiers, and protests earlier this year.

 

Crude oil prices swung on Hormuz flows and conflicting reports about the Strait.

 

Iran denied the US claims that the Strait is open and reaffirmed that no ship will be allowed to transit without formal approval from the Iranian authorities. At the time of writing, Brent oil futures were trading at $87.78, down 1.5 per cent for the day.

 

The International Energy Agency has revised its Q3 oil deficit higher from 0.80 mbpd it forecasted earlier to 1.8 mbpd, though it sees the oil market tipping into a surplus of 4.6 mbpd in 2027. It forecasts oil demand contracting by 1.6 mbpd in 2026 -- the fastest pace since the 2020 pandemic and up by nearly 0.50 mbpd it estimated a month ago.

 

US Dollar Index and yields:

 

The US Dollar Index was flat at 99.98 at the time of writing this article. The Index is down 1.8 per cent from its cycle and 15-month high of 101.80 hit on June 24.

 

Two-year yields fell to 4.14 per cent -- lowest since July 17 and were down 1 per cent for the day, while 10-year yields at 4.64 per cent were down 1.1 per cent.

 

Fed rate hike probability:

 

Fed rate hike probability for its September FOMC meeting has declined sharply from 75 per cent seen a month ago to 35 per cent. Similarly, probability of the Fed hiking the benchmark rate by the year-end has fallen from 90 per cent to 70 per cent.

 

Upcoming data:

 

Major US data lined up in near term include July retail sales advance (August 14), July University of Michigan sentiment and inflation expectations (August 14), June TIC flows (August 18), weekly ADP employment change (August 18), July import price Index (August 18), July housing starts (August 18), July industrial production (August 18), August Philadelphia Business outlook index (August 18) and July Lead Index (August 20).

 

China's July property data, industrial production and retail sales will be released on August 17.

 

Traders will also monitor the Eurozone's Q2 GDP (August 14), July CPI (August 19) and the UK's July monthly labour report (August 18) and July CPI (August 19).

 

ETF and inventory:

 

Total known global silver ETF holdings stand at 797 Moz, up 2 per cent/498 tons from the cycle low of 781 Moz reached on July 14, as investors once again began piling into the metal on expectations that the US Federal Reserve will be less hawkish. However, ETF holdings are still down over 7 per cent Y-T-D and down 4 per cent since the beginning of the Iran war in February-end.

 

Registered COMEX Silver inventory at 99 MOz is up 3 per cent from the cycle low of 75.71 Moz reached in April, but down over 50 per cent from the record peak of 201 Moz seen in September last year.

 

Shanghai on warrant daily total silver stock has surged over 400 per cent from the cycle low of 252 tons seen in March.

 

One-month LBMA lease rate:

 

One-month Lease rate at -0.16 per cent does not reflect any immediate supply concerns. The long-term lease rate average is 0.3-0.6 per cent.

 

China’s silver imports jump in June

 

Chinese imports of silver containing ores jumped 62.5 per cent Y-o-Y in June, to 219,000 tons on industrial demand as nation expands its solar manufacturing capacity and power grid infrastructure

 

Outlook:

 

Spot silver is expected to consolidate its gains after rising a whopping 12 per cent last week.

 

Although intrinsic fundamentals are not very encouraging now (as seen in one month LBMA lease rate, rising Chinese inventory), the white metal can extend its rally to $68 in near term. Traders may buy dips with a stop loss below $62.90 for a target of $68.