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Silver: Erases some of its losses on Trump’s speech but remains under pressure

 

Performance

 

Spot silver traded between $30.06 and $30.87 on January 24. The metal slumped in the US session to day’s low at $30.06; however, it recovered partially on Trump’s speech at the Davos Forum in which he called for dropping interest rates to support the economy.

 

The metal was trading at $30.48, down over 1 per cent on the day at the time of the MCX closing. The MCX March silver contract at Rs 91,057 was down 0.96 per cent on the day. 

 

Trump’ speech

 

President Donald Trump, as he addressed world leaders at Davos Forum on January 23, said that he would ask Saudi Arabia and other OPEC nations to bring down the cost of oil as he reiterated his threat to use tariffs to support manufacturing in the US. He also called for an immediate cut in interest rates. He blasted wasteful deficit spending of the previous US government and energy restrictions.

 

The US Dollar Index declined on his comments, which led to a recovery in gold prices from the day’s low.

 

Data roundup

 

US weekly job data were weaker-than-expected initial jobless claims rose to 223K (forecast 220K) from 220K whereas the continuing claims at 1899K (prior 1866K) were way above the forecast of 1866K. The continuing claims rose to the fresh cycle.

 

Upcoming data

 

Today's major data attractions will be PMIs out of Europe and the US. Apart from these data, traders will also monitor Japan's national CPI inflation (December) along with University of Michigan sentiment (January preliminary) and both 1-year and 5-10year inflation expectations.

 

US yields and the Dollar Index

 

The ten-year US yields recovered to rise more than 1 per cent to 4.645 per cent despite weak weekly job data. The 30-year US yields at 4.88 per cent were up 1.37 per cent bps at the time of writing this report. The US Dollar Index at 107.97 was down 0.20 per cent.

 

ETF and COMEX Inventory 

Total known global ETF holdings rose 721.034 MOz on January 22, which is the highest level since December 13. Holdings have risen for three straight days. The COMEX silver inventory rose to a fresh cycle high of 339 Moz.

 

Outlook

 

Silver looks vulnerable as industrial commodities are under pressure on Trump’s tariff threats. The ten-year US yields are up around 2 per cent this year; however, the spot silver is around 5 per cent up this year. The metal is getting some support from gold, but it continues to lag.  Despite gold being merely 1 per cent shy of its all-time high mark of $2790, the white metal is down nearly 13 per cent from its cycle-high of $34.90. It can come under huge pressure should the risk appetite weaken.

 

In very short-term, it may trade between $30 (Rs 89,600) and $31 (Rs 92,600). Selling into rallies is a preferred strategy. There is a strong resistance at $31.10 (Rs 93,000).

 

(Disclaimer: Praveen Singh is an associate VP of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)