Silver outlook, June 26: Bias bearish; MCX Sept contract support at Rs 88k

Silver outlook and trading strategy today, June 26, 2024: Spot Silver, at the time of the MCX closing, was trading at $28.90, down 2.45 per cent for the day on Tuesday

Silver tumbles on hawkish Fed speak, positive US data

Silver recent performance:

Spot silver tumbled on Tuesday, following a short-lived Monday rebound. The metal fell on hawkish Fedspeak, renewed inflation concerns due to Canada’s inflation data, and the possibility of a strong monthly job report out of the US.

The risk appetite was poor as wider markets were generally lower and commodities were down across the board. 

Spot Silver, at the time of the MCX closing, was trading at $28.90, down 2.45 per cent for the day, while the MCX September silver contract was at Rs 89,257 (LTP), down 1.89 per cent.

Fedspeak:

Federal Reserve Governor Michelle Bowman said on Tuesday that as she sees several upside risks to the inflation outlook, she prefers to keep borrowing costs elevated for some time. 

Federal Reserve Governor Lisa Cook, meanwhile, said that it would be appropriate to reduce interest rates at some point on expected improvement in the inflation data; however, she cautioned that the timing of rate cuts will depend on how economic data evolve and their implications for the economic outlook and balance of risks.

The US Dollar Index and treasury yields:

The ten-year US yields, at 4.243 per cent, were up 0.12 per cent when the MCX closed; the yields recovered nearly 1 per cent from the day's low. The US Dollar Index at 105.63 was up 0.15 per cent for the day. 

Data round up:

Although the US CB Consumer Confidence Index edged lower to 100.40 in June from 101.30 in May, the Present Situation Index improved as the expectations Index fell to 73 from 74.9.

The June non-farm payroll report may be a robust one - The labour market differential data within US June Conference Board Consumer Confidence rose for the first time since January, which indicates an improvement in the job market. Five of the eight Fed surveys released this month signalled improvement in the US employment as the S&P Global’ s preliminary June PMI report, released last Friday, showed service sector payrolls rose to the highest level in the last five months and manufacturing payrolls increased at the fastest pace in the last twenty-one months. These data suggests that the non-farm payroll report (June) could be a strong job report, which in turn, intensified the downside pressure on silver and other commodities.

In a notable development, Canada’s consumer price index rose 2.9 per cent in May on a Y-o-Y basis, up from 2.7 per cent a month earlier, which topped the estimate of 2.6 per cent. Even on a month-on-month basis, the Consumer price Inflation index climbed 0.6 per cent, versus the forecast of a 0.3 per cent gain, and was up from 0.5 per cent in April.

ETF flows and the COMEX inventory:

Total known global silver ETF holdings stood at 685.646 Moz as on June 24, which is slightly lower than the level seen at the end of the last week.

The COMEX inventory stood at 297.415 Moz as on June 24, 2024, which is the highest level since June 4.

Upcoming data:

Today’s major US data include new home sales (May). However, investors will pay more attention to the US GDP (Q1 final reading) and PCE deflator inflation (the Fed’s preferred inflation gauge) data to be released on Thursday and Friday, respectively.

Outlook:

Canada’s latest inflation data has sown doubts about the narrative of disinflationary trend in the G10 economies. As per Bloomberg, the 3-month change in the median CPI of developed market (DM) countries is about to go back into positive territory. Increased possibility of a robust non-farm payroll report out of the US is yet another negative factor for the metal. 

In this scenario, the metal is expected to trade with a bearish bias unless the US GDP disappoints or the US PCE deflator inflation data underwhelms.

Support is at $28.50 (MCX September Silver contract Rs 88,000) /$28 (Rs 86,500). Resistance is at $29.75 (Rs 92,000)/$30 (Rs 92,600).

===================
Disclaimer: Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.