Here's how to trade Silver on October 31; check resistance, support here

Silver: Extends its recovery

Performance:

Despite weakness being evident in the gold market, spot silver managed to rise for the third consecutive day on October 30.

 

It is to be noted that the grey metal slumped 16.37 per cent after reaching a record high level of 54.47 on October 17. The metal fell to 45.55 on October 28.

 

At the time of writing this article, spot silver was trading at $48.88, up 2.75 per cent for the day, while the MCX December silver contract at Rs 148,950 was up 1.95 per cent.In the week ending October 24, spot silver fell 6.35 per cent to $48.62.

US-China trade deal

The US and China struck a trade deal in South Korea on October 29.

 

Trump said that he would immediately halve fentanyl tariffs to 10 per cent and extend the existing truce on reciprocal tariffs as China is set to restart soybean imports and pause rare earth licensing for a year.

 

The US and China will suspend reciprocal shipping levies for one year.

 

Reduction in fentanyl-related tariffs would bring average US tariffs on China down from 40.80 per cent to 30.80 per cent, which in turn would lower average US tariffs on the world from 15.70 per cent to 14.40 per cent.

 

The US agreed to suspend a rule that widened restrictions on blacklisted Chinese firms.

 

However, as fundamental issues like trade imbalance, industrial subsidies, etc, remain unresolved, the truce is being largely seen as a short-term respite that will give both countries time to further reduce their dependence on each other in strategic areas as they drift apart.

Central Bank watch

In a highly anticipated monetary policy decision, the US Federal Reserve slashed the overnight Fed Fund rate by 25 bps to a 3.75 per cent-4 per cent range.

 

The Federal Open Market Committee voted 10-2 in favour of the rate cut. The newly appointed Fed governor, Stephen Miran, dissented once again as he called for a 50-bps cut, while Jeffery Schmid, the Kansas Fed President, dissented against the rate cut, which was a hawkish surprise. The Fed said that it will end the asset runoff (reduction of its securities holdings) beginning on December 1. The Fed Chair Powell warned in his presser that the December rate cut was not a done deal as the Fed faces a lack of data due to the ongoing US government partial shutdown.  Hawkish FOMC decision weighed on commodities as the US Dollar Index and yields shot up.

 

On October 29, the Central Bank of Canada cut its interest rate by 25 bps to 2.25 per cent amid tariff wars, though it signalled that its borrowing costs have reached the right level as long as its forecasts hold good.

In yet another key decision, as expected, on October 30, the European Central Bank left key interest rates unchanged for a third meeting as inflation is around the Bank's goal of 2 per cent and the economy continues to grow. 

 

The Euro area economy grew 0.2 per cent (forecast 0.1 per cent) on a Q-o-Q basis in Q3.

 

US Dollar and yields

The US Dollar Index, boosted by hawkish FOMC rate cut, gained nearly 0.5 per cent on October 29. At the time of writing this article, the Index was hovering around 99.55, up 0.35 per cent for the day.

 

The 2-year US yields were steady at 3.60 per cent, while ten-year yields rose 1 bps to 4.09 per cent. The US 2-year yields and 10-year yields surged by 2.90 per cent and 2 per cent respectively, on October 29 on the hawkish Fed. 

Silver ETF holdings and COMEX inventory

As of October 29, silver ETF holdings stood at 814.59 MOz, down 2.50 per cent from the cycle peak of 835.53Moz observed on October 21. Nonetheless, net silver ETF inflows are up 14 per cent YTD (3110 tons), and the holding level is at the highest since May 2022.

 

Eligible COMEX silver inventory stood at 321.80 Moz as of October 30, down over 6 per cent from the peak recorded at 342 MOz on October 3.

Silver lease rate

One-month silver lease rate in London has fallen from 34.95 per cent on October 9 to 2.56 per cent presently as LBMA tightness has eased due to stock flows from China and New York.

Outlook

Silver holding well despite elevated yields and a firmer US Dollar is a positive sign.

 

However, easing the silver lease rate has taken out the bullish sting to some extent. At the same time, declining silver ETF holdings also add to the downside pressure.

 

The corrective bounce in the metal may extend further to $50/$51 on the Fed rate cut and bargain buying.  Medium-to-long term outlook remains constructive, though we may see heightened volatility in the near-term.  

 

Silver support is seen at $47.66 /$45.22/$44, while resistance is at $49/50.02/$51.07.  (Disclaimer: Praveen Singh is the head - currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)