Strength in gold spilling over silver trading: Mirae Asset Sharekhan

Silver: Bulls set eyes at $35

 

Performance:

Buoyed by safe haven demand, as gold hit a fresh record high of $3,059 on Trump’s auto tariffs, and a weaker dollar, spot silver reached a fresh cycle high of $34.40 on March 27.

 

The metal traded between $33.59 and $34.40 on Thursday. At the time of writing this report, it was trading at $34.21, up nearly 1.7 per cent. The MCX Silver May contract at ₹101,048 was up 1.58 per cent.

 

Tariff development:

The US President Trump signed an order to implement a 25 per cent tariff on auto imports, effective from April 3, which will initially target fully assembled vehicles. The President threatened Canada and the European Union (EU) with more tariffs should they work together to do economic harm to the US. He said that tariffs will be permanent with no exceptions. The latest round of tariffs is further escalating tensions with US trade partners ahead of reciprocal tariffs that will come into effect from April 2.

 

The EU vowed to defend its economic interests as Canada called these tariffs violating the US-Mexico-Canada trade agreement.

 

Top officials from China, Japan and South Korea will meet in Seoul this weekend to seek economic cooperation to counter rising trade frictions.

 

Data roundup:

As per the final print, US GDP (Q4) rose 2.4 per cent on an annualized basis as personal consumption at 4 per cent trailed the estimate of 4.2 per cent. US Q4 GDP Price Index at 2.3 per cent (forecast 2.4 per cent, prior 2.4 per cent) and Core Price Index at 2.6 per cent (forecast 2.6 per cent, prior 2.7 per cent) were somewhat reassuring on the inflation front. 

 

Weekly job data were mixed as initial jobless claims at 2,24,000 came in below the forecast of 2,25,000 whereas continuing claims at 18,56,000 were lower than the estimate of 18,86,000. Pending home sales rose 2 per cent month-on-month (M-o-M) in February, better than the forecast of 1 per cent, but were 7.2 per cent lower year-on-year (Y-o-Y) against the forecast of a decline of 3.5 per cent.

 

US dollar Index and yields:

On March 27, ten-year US yields swung between 4.33 per cent and 4.40 per cent. Yields are nearly 3 per cent up on the week. long-term yields are going up on investors' concerns about tariffs being inflationary. The thirty-year yields at 4.75 per cent reached the highest level since February 20. The two-year US yields at 4 per cent were down nearly 1 bps at the time of writing this report. 

 

The Fed rate cut prospects are weighing on short-term yields. The US dollar Index was at 104.27, down around 0.3 per cent on the day, though it is slightly up on the week.

 

Upcoming data:

Traders will closely monitor the US core PCE Price Index data, the Fed's preferred gauge of inflation, to be released today. Apart from this data, University of Michigan Sentiment and both short-term and long-term inflation expectations (March Final) will also be crucial as the sentiment has slumped to the lowest since November 2022, whereas long-term inflation expectations are at the highest since 1993. 

 

Germany's unemployment change (March) and EU's consumer confidence will also influence commodities to some extent.

 

ETF:

Total known global silver ETF holdings stood at 719.725 MOz as on March 26, up nearly 0.4 per cent year-to-date (Y-T-D) and 1 per cent on the week.

 

COMEX silver Inventory:

As in the case of gold, silver inventory at 467.152MOz is at a record high on delivery demand.

 

Outlook:

Silver prices sustaining at higher levels amid elevated 10-year US yields and rising tariff tensions is a positive sign for the metal. Strength in gold is spilling over into silver trading as well. 

 

Although silver ETF flows have been quite volatile, net inflows turning positive this year and the recent pickup in the inflows are supportive, too. Weakness in base metals poses a risk though. 

 

Overall, the silver outlook is turning increasingly constructive. It is likely to test resistance at $34.90 (October high) and $35 (MCX Silver May contract ₹103,381)– a key resistance breach of which can take the metal to $37 (₹109,000) in coming weeks. Support is at $33.67 (₹99,300)/$33.50 (₹98,900).    

 

**MCX silver rates have been calculated at USDINR spot rate of ₹85.67.

  (Disclaimer: This article is by Praveen Singh – associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)