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Silver may decline a bit, though downside is likely to be limited

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Silver – Up as the US Dollar weakens, and yields fall

 

Performance

 

On February 20, spot silver traded between $32.62 and $33.21. The metal closed with a gain of nearly 0.76 per cent at $32.95.

 

Data roundup

 

The US data released on February 20 were mixed as Philadelphia Fed business outlook at 18.1 was better than the expected reading of 14.30 but decline from the prior reading was quite steep. Weekly job report was slightly disappointing as both continuing claims and initial jobless claims were higher than expected.

 

Japan’s January inflation data released today showed that both core (3.2 per cent Vs 3 per cent estimate and headline CPI data (4 per cent Vs 3.6 per cent forecast) were hotter than expected.

 

US data continue to disappoint as downside surprises rise: ISM services, retail sales, NAHB housing Index and housing data have trailed their respective estimates.

 

FOMC minutes: The Federal Reserve (Fed) Minutes for the January 29 policy showed that the members did not see any rush for rate cuts as economy is doing well and is running at nearly maximum unemployment. Some members noted that it may be appropriate to consider pausing or slowing the balance sheet runoff due to debt ceiling issues.

 

Geopolitics watch

 

Ukraine peace initiatives remain in focus, though geopolitical concerns have come to fore once again as after President Trump called Zelenskyy a dictator, urging him to step down otherwise he risks losing his county. He alluded that Ukraine started the war with Russia.  READ: Gold trading strategy on February 21: Support at Rs 84,800, Resistance at Rs 87,770

 

Tariffs

 

President Trump said he will announce tariffs on cars, semiconductors, chips, pharma and probably lumber as soon as the next month as he is looking at a 25 per cent tariff on lumber and forest products. There was some respite on tariff front as he said on February 20 that a new trade deal with China is possible.

 

ETF and inventory

 

Total known global silver ETF holdings were seen at 703.748 MOz on February 19, the highest since February 5. However, net ETF holdings are down by nearly 13 MOz so far in 2025. As in case of gold, the COMEX silver inventory at 385.279Moz is at the highest level since March 2021.

 

Upcoming data

 

Today’s US data include S&P PMIs (February prel.), University of Michigan sentiment (February final) and inflation expectations (February final).

 

Walmart’s warning

 

The World’s largest retailer was gloomy in its profit and revenue guidance due to inflationary concerns.

 

Fedspeak

 

Fed's Barr (Vice Chair supervision) urged to implement international capital standards as he called for strong bank regulation and supervision against potential shocks. Fed's Musalem more progress is needed to ensure that inflation is returning to the 2 per cent target before further policy changes. He added that so far there is no plan to change the Fed balance sheet drawdown. Fed's Bostic said that uncertainty is widespread and sees two interest-rate cuts this year, inflation data has been bumpy though.

 

US Dollar and yields

 

The US Dollar Index fell 0.76 per cent to close at 106.36 on a possibility of new trade deal with China and the FOMC minutes showing that the Fed may reduce the QT pace. The ten-year US yields at 4.50 per cent were down nearly 3 bps. 

 

Outlook

 

As the US data have been mostly disappointing of late, stagflation concerns are surfacing up. Walmart’s warning is a case in point. Elevated and sticky US inflation may delay Fed rate cuts. On the other hand, possibility of a new trade deal with China is supportive for the metal. Weaker US Dollar and softer US yields may also support the metal. However, a possible correction in gold prices, as the US may not revalue its gold reserves, may weigh on silver. The metal may decline a bit, though downside is likely to be limited. Overall, buying the dips for possible targets of $33.45 (Rs 98,400 -- MCX Silver March contract)/$35 (Rs 102,500) is the preferred trade. Support is at $32.50 (Rs 95500) /$32 (Rs 94000). 

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