How to trade Silver as Israel mulls another attack on Iran? Key levels here

Silver rises despite tumbling base metals and subdued gold prices

 

Silver performance on Thursday:
 

Spot silver fell to $31.40 in the Asian session on firmer US Dollar and higher yields. It, however, managed to rise to trade in green despite a robust US ISM services report (September) as geopolitical concerns came to the fore once more. The metal caught bids on the news of Biden Administration discussing Israel hitting Iranian oil facilities.

Spot silver was trading at $32.07, up around 0.60 per cent on the day at the time of the MCX closing. MCX December Silver contract was at Rs 92,870, up 1.64 per cent.   

Data roundup:

The US ISM services data (September), released on Thursday, came in at 54.90, which beat the forecast of 51.70 by a wide margin. ISM prices paid jumped to 59.40 (forecast 56) from 57.30 in August as ISM services new orders at 59.40 were well above the forecast of 52.50. 

Although employment dipped into the contraction territory, ISM services report could be considered as a robust one, which has reduced the odds of a 50-bps at the next FOMC meeting. Weekly job report was mixed as weekly claims at 225,000 topped the forecast of 221,000, but continuing claims at 18,26,000 lagged the estimate of 18,30,000. 

Factory orders (August) came in at -0.20 per cent versus the forecast of 0.20 per cent. Overall, the US data released on Thursday could be considered positive for the US economy and the US Dollar Index. The US ADP data (September), released on Wednesday, came in at 143,000, better than expected figure of 120,000. It is to be noted that JOLTs Job openings (August), released on Tuesday, had also topped the forecast. The Euro-zone's services PMI (September final) was revised higher from 50.50 to 51.40 as even composite PMI was better than the initial estimate.

US yields and Dollar Index:

The ten-year US yields at 3.83 per cent were up around 1 per cent on the day. The US Dollar Index was at 101.92, up 0.23 per cent.

Geopolitical watch:

The US President said that they were discussing supporting Israel's attack on Iran's oil facilities in response to Iran's attack on Israel using ballistic missiles. Iran has said earlier that it is done with its attack; however, Israel has vowed a strong retaliation to Iran's attack. Iran has warned to take strong measures in case Israel retaliates; thus, worsening geopolitical situation has pushed up geopolitical premium in silver prices.   

Upcoming data:

The US nonfarm payroll report will be released today. The report is important as the Fed is monitoring the US job market for signs of any alarming weaknesses. Thus, an unexpectedly weak report will boost the probability of a 50-bps cut at the next FOMC meeting, which will be positive for the metal. It is being estimated that the nonfarm payroll report may throw an upside surprise.

ETF and inventory:

Total known global silver ETF holdings stood at 721.178 MOz as of October 2. COMEX silver inventory stood at 305.068 MOz as of October 2, which is at nearly 3-week high.

Perth Mint reported that sales of silver coins and minted bars rose to 963,198 Oz in September from 647,832 Oz in August.

Silver Outlook:

The performance of the metal on Thursday has been encouraging as it managed to rise despite subdued gold prices and tumbling base metals. Its rebound is facing resistance at $32.30 (Rs 93,500), a breach of which could help the metal test the next resistance at $32.77 Rs 95,000), the cycle high.

Support is at $31.10 (Rs 90,000).

Today's US nonfarm payroll report may induce huge volatility.

Dip buying is a preferred option on elevate geopolitical risks. 

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Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at  Sharekhan by BNP Paribas. Views expressed are his own.