Hormuz reopening hope to support silver, resistance at $65: Mirae Asset

Mirae Asset Sharekhan said that traders may buy the metal with a strict stop-loss below $62 for short-term trading. Resistance is seen at $65, followed by the $66.05-$66.40 zone.

Disclaimer: This article is written by Praveen Singh, Head of Commodities at Mirae Asset Sharekhan. Views expressed are his own. Readers' discretion is advised.

 

Silver: Hormuz reopening hopes may support briefly

 

Spot silver has traded in the range of $62.31 and $68.32 in September so far. Like gold, silver has been under tremendous selling pressure this month as yields spike on rate hike concerns due to elevated oil prices.

 

At the time of writing this article on the night of September 24, the white metal was trading with a daily loss of 1.1 per cent at $63.70. The metal erased some of its intra-day losses as oil eased from its day's high on the possibility of reopening of the Strait of Hormuz. Silver is down over 4 per cent this month.

 

 

Trump-Xi summit:

 

China's President Xi Jinping in Washington on a three-day state visit that started on September 23. At the outset, the US and China agreed to extend the existing bilateral trade truce by two months to January 10, 2027.

 

The leaders are expected to discuss crucial issues like AI, security, and technology. The Iran war, yet another flashpoint between these two countries, can also figure up in discussions as the US pushes for economic isolation of Iran. However, the visit is mostly about pomp rather than substance.

 

Xi urged the US and Iran to return to talks and hoped that the two countries would achieve peace. 

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Geopolitics and oil:

 

Reuters reported that the US and Iran are exploring a phased deal to open the Strait of Hormuz.

 

Saudi Arabia's oil exports have averaged 5.28 mbpd in September, the highest since the Iran war broke out.

 

The US is mulling a 90-day ban on diesel exports, though it could be moderated to voluntary restrictions. The diesel export ban may backfire as gasoline production may also be affected as refiners cut back on diesel production. In addition, such a step will worsen the existing global diesel shortage and hasten the second-round effects of high oil prices, which will further boost inflationary pressure.

 

At the time of writing, Brent oil futures were trading at $105.54, up over 2 per cent, as oil eased on Hormuz reopening optimism. A decisive breach of $110 resistance can take the counter materially higher.

 

Data roundup:

 

US data released on Thursday showed initial jobless claims fell from 198K to 197K (forecast 200k) as even continuing claims at 1719K came in well below the median estimate of 1740K.

 

S&P Global US manufacturing (September prel.) came in at 57-- best since 2022 and comfortably beat the forecast of 53.70 (prior 53.90); services PMI rose to 58.70-- the quickest pace since 2021. Consequently, the Composite PMI rose to 58.4 -- fastest since July 2021. Employment surged the most in four years, though prices paid grew at the fastest pace since 2022, which amplifies inflationary pressure concerns. 

 

S&P Global Eurozone composite PMI surged from 52 in August to 53.1 (forecast 51.7) in September. Aided by volatility in Irish accounting, the Eurozone recorded a GDP growth of 0.6% QoQ in Q2. The European central bank may hike rates yet again in December.

 

Fedspeak:

 

Richmond Fed President Barkin said the labour market is stable, but new job growth remains low. He added that inflation persistence was more evident this summer.

 

Fed Governor Barr called for more rate hikes as inflation is not progressing towards the Fed's goal of 2 per cent in a timely manner.

 

NY Fed President Willliams said another rate hike this year will be reasonable as more work is needed to tame inflation. Citing resilient US economy, he said the Iran war and AI investment pose lingering inflationary risks.

 

Fed speakers continue to maintain a hawkish tone post-FOMC decision.

 

US Dollar Index and yields:

 

Global bond market rout due to decent growth amid sharply higher oil prices has sent the yields on the long-dated government bonds to the highest since 2004. The average global yield on government bonds is within striking distance of the highest since 2007.

 

The 30-year US yields surged to 5.44 per cent, highest since 2004.

 

At the time of writing this article on the night of September 24, the US Dollar Index was hovering around 101.15, up 0.10 per cent for the day and at the highest since July 29. The Index has surged nearly 2 per cent in September and has gained more than 3 per cent Y-T-D.

 

Two-year US yields spiked to 4.94 per cent -- highest since May 2024 before easing to 4.88 per cent on Thursday on renewed optimism about the Strait of Hormuz reopening. Similarly, 10-year yields rocketed higher to 5.16 per cent -- a fresh cycle high since 2007, before easing to 5.13 per cent as oil prices eased.

 

ETF and COMEX inventory:

 

Global silver ETFs recorded a hefty inflow of over 6.5 Moz on September 22, which has helped the ETFs level reach 804 Moz, up nearly 715 tons from the cycle low of 781 tons noted on July 14. However, holdings remain 8.08 per cent (2022 tons) lower than the cycle peak of 869 Moz seen on December 23 last year. Holdings are now down 28 Moz (871 tons) since the start of the Iran conflict.

 

Registered COMEX silver inventory at 95.49 Moz is down 52.45 per cent from the record inventory level of 201 Moz seen in September last year.

 

Silver lease rate:

 

One-month LBMA rate stands at -0.1 per cent, indicating ample inventory in LBMA warehouses, a bearish implication for the metal, as the historical long-term average is 0.3-0.6 per cent.

 

China's silver market:

 

Shanghai Silver on warrant stocks daily total has surged to 1444 tons, highest since February 18, as stocks have risen sharply from the decadal low of 252 tons noted on March 11.

 

Silver price outlook

 

In the very short term, the Hormuz situation will impact silver prices, as oil gyrations will impact the October Fed rate hike probability. Markets see a probability of 66 per cent that the Federal Reserve will hike the Fed funds rate at its October meeting.

 

Intrinsic fundamentals, as reflected in subdued ETF flows, extremely low one-month LBMA lease rate, and exponentially rising Chinese silver inventory, are not very encouraging; thus, the white metal is quite vulnerable amid high oil prices. However, the Hormuz reopening hope can keep the metal supported in the very short term.

 

Traders may buy the metal with a strict stop-loss below $62 for short-term trading. Resistance is seen at $65, followed by the $66.05-$66.40 zone. 

 

At the same time, Hormuz reopening hope turning out to be yet another false dawn could take it down to $58.