Silver to consolidate in near term: Praveen Singh, Mirae Asset Sharekhan

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Silver: Lower as the US Dollar rebounds and yields recover

 

Performance:

On March 20, spot silver traded between $33.10 and $33.95. The metal, at the time of writing, was changing hands at $33.43, down over 1 per cent on the day.

 

The MCX May silver contract at ₹99,381 was down around 0.5 per cent. Silver reached $34.23, its cycle high on March 18, before giving back some of its gains.

 

FOMC:

As expected, the US Federal Reserve, kept the Fed Fund rate unchanged in the 4.25 per cent to 4.50 per cent range.

 

As per its new summary of projections, gross domestic product (GDP) growth rate is likely to slow down from the previous estimate of 2.1 per cent to 1.7 per cent in 2025. The Central Bank revised its core PCE deflator inflation estimate higher from 2.5 per cent to 2.80 per cent as it sees unemployment rate also edging higher from its previous forecast of 4.3 per cent to 4.4 per cent. The central bank noted economic uncertainties due to Trump’s tariff plans and said there is no rush to move on rates, though it may act should the job market weaken. The pace of quantitative tightening (QT) will be reduced from $25 billion per month to $5 billion in treasury holdings from April 1. The Bank signalled two rate cuts this year.

 

Markets initially took slower QT pace and rate cut signal despite elevated inflation to be positive but soon became sceptical about the rate cut possibility as inflation is still elevated and the US economy is doing well.

 

A reconsideration of the US FOMC policy decision boosted the US Dollar that weighed on silver. 

 

ETF holdings:

Total known silver ETF holdings stood at 715.04 MOz as on March 19, highest since January 22 and are down over just 1 MOz YTD.

 

COMEX silver inventory:

COMEX silver inventory stood at 453.06 MOz as on March 19, a record high level as buyers at COMEX opt for delivery.  ALSO READ | How to trade Gold today? Praveen Singh of Mirae Asset Sharekhan suggests

 

Data roundup:

US data released on Thursday alleviated recession concerns to some extent. Weekly jobless claims (March 15) came in at 2,23,000 (prior 2,20,000), slightly less than the forecast of 2,24,000, though continuing jobless claims at 1892k were slightly higher than the forecast if 18,87,000. Philadelphia Fed Business Outlook (March) fell from 18.1 to 12.50 but topped the estimate of 9. The Leading Index (February) at -0.3 per cent was a tad worse than the estimate of -0.2 per cent but the prior data was revised higher from -0.3 per cent to -0.2 per cent. Existing home sales (February) rose from 4.09 million to 4.26 million, highest since March 2023.

 

Germany's producer’s price index (PPI) (February) declined 0.2 per cent month-on-month (M-o-M) as against the forecast of an increase of 0.2 per cent as even y-o-y reading at 0.7 per cent trailed the estimate of 1 per cent.

 

UK's monthly job report (January) was largely positive as ILO unemployment rate 3months matching the forecast held at 4.4 per cent as employment change 3M/3M at 1,44,000 topped the estimate of 91k. Jobless claims change rose from 22,000 to 4,42,000. Payrolled employees monthly change (February) at 21,000 showed an improvement over the prior data of 9k and was better than the estimate of -21,000. Average weekly earnings 3M/year-on-year (Y-o-Y) at 5.8 per cent matched the forecast, though it was slower than the prior data of 6.1 per cent.

 

Upcoming data:

No major data is scheduled to be released today. The major US data on the card next week include manufacturing and services purchasing manager’s index (PMIs) (March preliminary), new home sales (February), Conference Board consumer confidence (March), durable goods orders (February preliminary), the final reading of 4Q GDP, GDP Price Index and pending home sales.

 

US Dollar Index and yields:

The US Dollar Index was noted at 103.88 at the time of writing, up around 0.4 per cent on the day, as markets became sceptical over the possibility of the US Fed rate cuts due to the US economy doing reasonably well amid elevated inflation.

 

The ten-year US yields swung between 4.17 and 4.25 per cent and were steady at 4.24 per cent at the time of writing this report. Yields recovered on the comforting US housing data. Nonetheless, 10-year yields are still down nearly 2 per cent on the week.

 

Silver lease rates and squeeze:

Lease rates have jumped as one-month rates for silver rose above 6 per cent this month following a larger spike of 9 per cent on concerns about fast-depleting stockpiles in London and ETP demand.

 

The tariff concerns, especially levies against Canada and Mexico, as well as proposed reciprocal curbs, have drawn vast quantities of both gold and silver out of London vaults.

 

Outlook:

Geopolitical concerns, political and economic uncertainties due to trade friction and stimulus in China and Germany are positive for the metal. Reciprocal tariffs may severely impact the metal supply to the US; thus, a short squeeze in physical markets and eventually in futures markets may catapult the metal to much higher levels in the coming weeks.  However, in the near term, the metal is likely to consolidate between $33 (MCX Silver May contract ₹98,000) and $34 (₹1,01,000) on lack of clarity of the Fed’s rate path and a possible stabilisation in the US yields and Dollar before a successful breach of the stiff resistance at $35 (₹1,04,000).

 

Downside may be limited to $32.50 (₹96,600). Silver is likely to rise to $37/$38 (₹110,00 to ₹1,12,000) in the coming months.   (This article is by Praveen Singh – Associate VP, fundamental currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)