Trading Strategy: Here's how you should trade Silver today; details

Silver trading strategy: Healthy risk appetite on US-China trade truce extension and surging risk assets would continue to support the metal into the dips.

Silver: Up on a weaker Dollar, healthy risk appetite

Performance 

On August 12, spot silver swung between $37.50 and $38.03. The gray metal recovered on a weaker Dollar as the US President Trump said that he may allow a lawsuit against the Fed Chair Powell over the Fed headquarters’ renovations. The US Dollar extended its decline on the BLS nominee EJ Antoni suggesting suspension of the monthly jobs data in an interview conducted before his nomination. 

At the time of writing this article, spot silver was trading at $37.94, up nearly 0.90 per cent for the day. The MCX September silver contract at Rs 113,779 was up 0.43 per cent.

 

Data roundup

The much-awaited US CPI report (July) released on August 12 was not very comforting. Headline CPI rose 0.2 per cent m-o-m (forecast 0.2 per cent) and 2.7 per cent (forecast 2.8 per cent). However, core CPI, fuelled by services prices, climbed 3.1 per cent (forecast 3 per cent), fastest pace since February and the most in the last three years. Goods prices, excluding food and energy commodities, were contained. Core CPI accelerated to 0.3 per cent on m-o-m basis, faster than the estimated pace of 0.2 per cent increase. Shelter prices rose 0.2 per cent for a second month. Supercore services climbed 0.5 per cent--fastest pace since January. 

Despite elevated inflation readings, odds of a 25-bps cut in the September FOMC meeting stand above 90 per cent, though rate cuts beyond that look less certain.

 

Trade and tariffs 

On August 12, the US President Trump defended his tariff strategy as he said that trillions of Dollars are being taken in tariffs, which has been incredible for stocks and economy. He further said that consumers are not even paying tariffs. Stephen Miran, the head of the Council of National Economic Advisors, said that tariffs will be borne by foreign companies and there is no evidence of tariffs in inflation.

 

US Dollar Index and yields 

At the time of writing this article, the US Dollar Index was hovering around 98, down nearly 0.5 per cent for the day. Ten-year US yields recovered on Trump threatening Powell with lawsuit and were steady at 4.29 per cent, while 30-year yields at 4.88 per cent were up by 0.60 per cent. 

 

Upcoming data 

PPI (July) will be released on August 14, while August 15, a national holiday in India, is packed with crucial data like retail sales (July), industrial production (July), University of Michigan sentiment and inflation expectations (August prel.) along with import and export price indices (July).

  Apart from data, as rate cut expectations grow despite high inflation, focus will be on Fed speakers, too.

 

Silver ETF and COMEX Inventory 

Total known global silver ETF holdings stood at 787.915 MOz, up 9.91 per cent YTD and at a 3-year high. COMEX silver inventory, currently at 506.44 MOz continues to hover around record-high level.

 

Perth Mint's silver sales: Perth Mint’s July silver sales slumped to a six-month low.

 

CFTC 

As per CFTC data, hedge fund managers cut their net-long positions by 13,012 lots to 30,621 lots, the least bullish in eleven weeks.

 

Silver Outlook

  Healthy risk appetite on US-China trade truce extension and surging risk assets would continue to support the metal into the dips. A weakening US Dollar, subdued yields, rate cut expectations and strong ETF interest also support the grey metal. As long as risk appetite is healthy, Buying the dips with a tight stoploss is the favoured strategy. 

Risk could come from US-Russia talks in Alaska. Support is at $37.50 (Rs 113,500)/$37 (Rs 110,900). Resistance is at $38.25 (Rs 114,700)/$38.75 (Rs 116,200).  

 

(Disclaimer: Praveen Singh is the head of currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)