Silver Trading Strategy: 50bps cut could help Silver clear Rs 90,400 hurdle

Silver price outlook by Sharekhan: Silver has got many supporting factors to push it higher as the Fed begins slashing rates.

Silver Prices Today: Spot silver, at the time of the MCX closing was down nearly 0.10 per cent as it was changing hands at $30.70. The MCX December silver contract closed at Rs 89,284 (LTP), down 0.36 per cent on the day. Outside markets were mixed.

Data round-up: US retail sales and industrial prodction climb in August

US data released Tuesday were largely better than expected, which eased the metal prices.

US retail sales advance (August), an important component of the US GDP, came in at +0.1 per cent m-o-m, compared to the forecast of -0.20 per cent as the July data was revised higher from 1 per cent to 1.10 per cent. Retail sales ex auto and ex auto and gas were up 0.10 per cent (forecast 0.10 per cent) and 0.20 per cent (forecast 0.30 per cent) compared to the respective forecasts of 0.20 per cent and 0.30 per cent.

Retail sales ex control group, more precise indicator to gauge consumer spending, matched the forecast of 0.30 per cent, while the July data was revised higher from 0.30 per cent to 0.40 per cent. Industrial production rose 0.90 per cent in August (forecast 0.20 per cent) as NAHB housing market Index (September) came in line with the forecast of 41.

US Dollar and yields: Climb on encouraging US data

The US yields were slightly firmer on encouraging set of US data. The ten-year US yields were seen at 3.65 per cent, up around 0.75 per cent on the day, whereas the two-year yields at 3.59 per cent were up over 1 per cent.

The US Dollar Index at 100.99 was up by 0.22 per cent on the day.

Upcoming data: US Federal Reserve's policy decision in focus

US FOMC monetary policy decision to be announced tonight is the most crucial decision for the markets as the Central bank is set to begin its easing cycle. Although economists forecast a 25-bps, markets are discounting a 50-bps rate cut possibility also. As reported in Wall Street Journal a few days back, the US Fed members are debating over whether to go for a 25 or 50 bps cut. This uncertainty is somewhat unusual as the Fed always believes in clear, well telegraphed decisions in its communications.

It is to be noted that probability of a 50-bps cut has not been affected by retail sales and industrial production data as it stands around 63 per cent.

Apart from the FOMC monetary policy decision, markets will look at the US housing starts (August), too.

ETF and COMEX inventory: At elevated levels

Total known global silver ETF holdings stood at 719.781Moz, the highest since April 2024.

COMEX silver inventory stood at 305.926 MOz, hovering around nearly 2-year high.

Outlook: Silver has got many supporting factors to push it higher as the Fed begins slashing rates. Geopolitical tensions, a 20 per cent deficit market, green energy transition, consumption in AI data stations, new application in medical fields, etc. However, near term prospects depend upon the pace of Fed rate cuts as the Chinese economy continues to struggle.

With a certain element of uncertainty going into the FOMC, the metal is likely to be somewhat volatile. While a 50-bps rate cut will help the metal clear the stiff hurdle at $31.10 (Rs 90,400) to challenge resistances at $31.55 (Rs 91,700) and $32.52 (Rs 94,500) eventually, a 25-bps rate cut with a balanced FOMC statements might take the metal down to $29 (Rs 84,300). Thus, it is advisable to manage risks with options and light positioning. Overall, outlook remains bullish though. 

(Disclaimer:Praveen Singh is Associate Vice President of Fundamental Currencies and Commodities at Sharekhan by BNP Paribas. Views expressed are his own.)