Silver to trade between $47.80 and $50.50 in near-term, says analyst

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Silver: Trying to recover after 2-day steep fall

Performance

On October 21, spot silver slumped from its intra-day high of $52.62 to $47.89, a decline of 9 per cent, its biggest decline since 2021. The metal extended its decline to the second straight day on October 22; however, it recovered some of its losses on October 23.

 

At the time of writing this article, the metal was changing hands at $49.02, up over 1 per cent for the day, while the MCX December contract at ₹1,48,601, was up 2.05 per cent.

Dollar Index and US yields

The US Dollar Index at 99 was up around 0.10 per cent for the day. The US 2-year and 10-year yields jumped by 3 bps and 4 bps respectively as oil spiked higher.

Geopolitics watch

US President Trump confirmed on Wednesday that the anticipated meeting with his Russian counterpart Putin, which was to take place in Budapest tentatively in two weeks, has been cancelled, though the Kremlin said that plans for a summit were still in the process of being finalized. Russia carried out nuclear missile tests and massive drills to showcase its strength.

 

The US will not provide Ukraine with Tomahawk missiles as the US President said it would take at least six months or even a year to train the Ukrainians in using the long-range missile system. The White House has reported that the Trump-Xi meeting will take place on the sidelines of the APEC summit in South Korea on October 30. 

Data roundup

US existing home sales came in at 4.06 million in September, in line with the forecast. 

London silver crunch set to ease

According to Shanghai Metals Market (SMM), customs data showed that Chinese exports of unwrought silver ingots with a purity ≥99.99 per cent reached 525.79 MT in September, up 28.71 per cent m-o-m and 44.90 per cent Y-o-Y as cumulative silver ingot exports from January to September reached 3,638 MT, up 20.68 per cent Y-o-Y. 

 

Exports are likely to maintain a positive momentum in October due to a short squeeze in overseas markets.Shanghai futures exchange on warrant silver stocks dropped from 1192 tons on September 29 to 663 tons on October 23.

 

Silver from New York is being airfreighted to London on arbitrage opportunities.

 

COMEX silver inventory has declined sharply from its all-time high level of 531.87 MOz seen on October 3 to 501 MOz, a decline of nearly 6 per cent and around 964 tons as the grey metal is probably flowing back to London vaults which will ease local shortage. Reportedly, short-term borrowing rates in London have eased, too.

Silver ETFs

Total known silver ETF holdings stood at 832.57 Moz as of October 22, which is near the cycle high of 835.53MOz registered on October 21. ETFs sold nearly 3 MOz on October 22; nonetheless, ETF holdings are at the highest since July 2022 and are up 16.5 per cent YTD. It is to be noted that silver holdings reached their record high level of 1.021 billion Oz on February 2, 2021.

China’s third plenum

The 20th Central Committee of the Communist Party of China concluded its four-day conclave on Thursday. Authorities’ focus is on dominating key technologies with self-reliance as key objectives and boosting domestic consumption. They want to invest in people, too, which means investing in social security net. 

Upcoming data

US CPI (September) will be released today, which will be crucial for the markets as elevated inflation may affect the Fed rate cut chances. S&P global US PMIs, University of Michigan sentiment and inflation expectations will also be released today. Out of Asia, traders will monitor Japan's national CPI (Sept.). The Eurozone's PMIs will also be on tap on October 24.

Next week, focus will be on Conference Board consumer confidence (October 28), advance goods trade balance (October 29), 3Q advance GDP and Core PCE Price Index Q-o-Q (Oct 30). The Eurozone's 3Q GDP data will be released on October 30.

 

The US FOMC rate decision due on October 29 will take CenterStage. The Bank of Japan will announce its monetary policy on October 30. wherein it is likely to keep its target rate unchanged at 0.50 per cent.

Outlook

Spot silver has come under tremendous downside pressure due to easing London supply crunch and investors turning cautious ahead of Trump-Xi and Trump-Putin meetings. In addition, US CPI data to be released today is quite crucial for the metal.

 

We continue to hold a positive stance on the metal as we look for a price target of $60-$65 in a year’s timeframe.

 

In the short-term, however, further heightened volatility can not be ruled out, especially due to geopolitical factors and US CPI data. Although October Fed rate cut is almost a certainty, US CPI data may affect December rate cut chances.

 

ETF inflows continue to provide a strong support to the grey metal. Silver is expected to trade largely between $47.80 and $50.50 in the near-term. A breach of $47.80 support may open a way to test the support at $45.70. The metal needs to take out a strong resistance zone of $55-$56 to extend its rally meaningfully. 

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