Silver seen trading in $54-61 range as fundamentals weak: Praveen Singh

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

 

Spot silver extended its rise to the third straight day on Thursday as the metal gained on easing rate hike worries. At the time of writing this article, the white metal was trading at $58.72, up 1.8 per cent for the day.

 

Geopolitics and oil

Five-day of relative calm in the US-Iran conflict has been shattered as Iran-backed allies in Iraq fired drones on Saudi Arabia. US and Saudi conducted joint strikes targeting Iraqi militia. The US launched a massive wave of attacks against Islamic Revolutionary Guard Corps (IRGC) command centres and drone facilities. A drone strike on a US-owned gas tanker in Egypt’s Mediterranean port of Damietta has raised concerns over supplies through Suez Canal as reach of Iran’s drone warfare has turned the situation quite volatile.

 

IRGC claimed that it destroyed two drone hangars, an aircraft fuel tank and military helicopters at the US-operated Ali Al Salem Air Base in Kuwait. IRGC also claimed to have attacked the US Al-Azraq Air Base in Jordan with ballistic missiles on Thursday morning. Reuters reported that Houthis worked with Iraqi armed groups to attack Saudi Arabia from Iraqi territory this week.

Admiral Brad Cooper, US commander of CENTCOM, is drawing up plans for 10 to 14 days of heavy bombing to cripple its missile capability.

 

China is sending 400 shoulder-fired air-defence missile launchers to Iran under a new deal underscoring their increasing military ties. The move could threaten the relationship between the US and China. Crude oil prices retreated slightly on Thursday on signs of increased flows through the Strait of Hormuz despite the intensifying conflict.

 

Central Bank Watch

As widely expected, the US Federal Reserve, in its monetary policy concluded on July 29, kept the overnight Fed Fund Rate unchanged at 3.5-3.75 per cent in 9-3 voting. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan dissented in favour of a 25 basis-point hike; however, markets had been expecting these officials to dissent, so it was not a surprise. Although the Fed Chair Warsh reiterated his hawkish stance that price stability is the Fed’s prime objective, he struggled to provide a solid reason for not hiking rates. 

 

As the markets had assigned 34 per cent odds of a rate increase, Warsh not joining dissenters in favour of a rate increase and lack of a clear explanation of as to why the Fed did not hike rates despite elevated inflation, led to a sharp decline in two-year yields and dollar index. Precious metals and other commodities rebounded.

 

The Bank of England left its key interest rate unchanged at 3.75 per cent Thursday, signalling that it stands ready to raise borrowing costs should high energy prices stoke inflation concerns further. The Bank now expects inflation to peak at 3.2 per cent in the fourth quarter and return to its 2 per cent target by early 2028. Bank of Japan is expected to keep its benchmark rate unchanged at 1 per cent in its monetary policy meeting on July 31.

 

Data roundup

Raft of US data released Thursday failed to ease intense downside pressure on the US dollar. Matching the estimate, US real personal spending came in at 0.4 per cent. Real GDP growth cooled to annualized 1.5 per cent in 2Q from 2.1 per cent in 1Q and fell short of the median forecast of 2.0 per cent. The GDP growth rate was dragged down by US trade deficit and smaller inventory replenishment that effectively reduced 1.7 percentage points from the economy's growth rate. 

 

However, indicating strong underlying domestic demand, real final sales to private domestic purchasers — consumer spending plus fixed investment — accelerated to 3.9 per cent from 1.7 per cent. Personal consumption rebounded sharply to 3.2 per cent from 0.5 per cent in Q1. PCE price Index, Fed's preferred gauge of inflation, cooled down from 4.1 per cent in May to 3.7 per cent, in line with the expectation. However, PCE inflation remains well above the Fed's goal of 2 per cent. The index fell 0.1 per cent on monthly basis (forecast -0.1 per cent). Similarly, June core PCE price Index at 0.1 per cent M-o-M and 3.3 per cent Y-o-Y matched their respective forecasts and were cooler than prior data.

 

Dollar index and yields

Dollar index has been hit hard by a dovish FOMC outcome, slightly lower oil prices and disappointing US Q2 GDP data. However, the greatest factor behind the weakness appears to a sharp appreciation in the Japanese yen that surged over 3 per cent against the US dollar, the biggest gain since December 2023. Sharp spike in the Japanese currency could be due to intervention by the Japanese central bank. It is to be noted that yen fell to 163.99, a fresh 40-year low on July 23.

 

India's central bank is said to have spent $7 billion in its currency intervention on July 24. It sold dollar on both onshore and offshore markets to defend the domestic currency as it approached record low.

 

At the time of writing this article, the dollar Index, extending its decline to the third consecutive day, was trading at 98.89, the lowest level since June 17. The index has slumped over 2 per cent in three days.

 

Two-year US yields fell for the fifth straight day; yields at 4.23 per cent were down 3 bps. Ten-year yields at 4.67 per cent were steady. While 2-year yields have fallen 14 bps from the cycle high, 10-year yields are down merely 4 bps as term premium and inflation concerns keep long-term yields relatively elevated.

 

ETF and inventory

Total known global silver ETF holdings stand at 787 Moz, up 6 MOz from the cycle low of 781 MOz observed on July 14. However, ETFs have seen a net outflow of 75 MOz YTD on rate hike concerns. 

Investors have dumped 45 MOz since the start of the Iran war in February end. Consequently, silver ETF holding has hit one-year low.

 

Registered COMEX inventory at 96.23 MOz is at the lowest since October 20255 and is down from the cycle peak of 201 Moz reached in September. Shanghai Silver on warrant stock has jumped to 1181 tons, up nearly per cent from the cycle low of 252 tons and is at the highest level since September 2025.

 

LBMA lease rate

One-month LBMA lease rate stands at 0.03 per cent that indicates no immediate supplies worries.

 

Upcoming data

Key US indicators on tap in near term include July final University of Michigan sentiment and inflation expectations (July 31), July ISM manufacturing (August 3), June JOLTs job openings (August 4), July ADP employment change (August 5), July ISM services (August 5) and July nonfarm payroll (August 7).

 

China's July manufacturing PMI (July 31), non-manufacturing PMI (July 31), RatingDog manufacturing PMI (August 3), ratingDog services PMI (August 5) and July trade balance (August 7) will also be on investors' radar.

 

Out of Europe, focus will be on Eurozone's July CPI (July 31), July manufacturing PMI (August 3) and services PMI (August 5) along with the UK's July manufacturing PMI (August 3) and services PMI (August 5). 

 

Silver outlook

Intrinsic fundamentals of the metal are not too encouraging presently due to ETF outflows, build-up of inventory in China, elevated yields and reigning uncertainty in the US-Iran conflict that is stoking inflationary concerns forcing the central banks to pivot to hawkish stance. The metal is expected to trade in the range of $54-$61. 

 

In the very short-term, silver can test the resistance around $61, with interim resistance at $59.45. Support is seen at $576.75/$54, while resistance is at $61. A close above $58.60 will give a positive monthly close.