Silver may fall to $58 - $54 in short term, cautions analyst at Mirae Asset

According to Praveen Singh, head of commodities at Mirae Asset Sharekhan, silver is expected to continue to remain under pressure unless a US-Iran deal is formally announced

Silver: Rate hike fears weighing on the metal

Performance

On June 11, spot silver, following a loss of 3 per cent on June 10, tumbled another 3 per cent to $61.51 in the Asian session before recovering on CENTCOM's (US Central Command) comments that it had completed its objective with strikes against Iran. 

The metal has tumbled 15 per cent this month as investors fully price in a Fed rate hike this year due to high inflation and encouraging US data, viz. nonfarm payroll, ISM services and manufacturing, etc. 

Silver is down 10 per cent YTD as it has tumbled 47 per cent from its record peak of $121 reached in January. 

 

At the time of writing, the white metal was hovering around $64, up 1 per cent for the day.

Geopolitics and oil

US–Iran skirmishes threaten the fragile ceasefire as the US military launched strikes against multiple targets in Iran for the second straight day. Iran retaliated by striking Jordan, Bahrain, and Kuwait. 

President Donald Trump, accusing Iran of dragging out talks on an interim peace deal, said the US would strike Iran very hard on Thursday. He also raised the possibility of seizing Iran’s energy facilities, including Kharg Island, the loading point for around 90 per cent of the country’s crude oil shipments. However, this would require putting US troops on Iranian ground, an option that is unpalatable. At the same time, US and Iran reportedly continue to negotiate with Qatar as a mediator. Iran's negotiator Ghalibaf warned the US of an endless quagmire should the US take impulsive decisions. 

Iran said that the Strait of Hormuz was now closed to all vessels, including oil tankers and commercial ships, though the US military contested this claim. 

Crude oil was choppy as it reacted to Iran-related headlines. Brent crude oil spiked 2.5 per cent higher to $95.50 as Trump threatened Iran; however, the counter eased on news that the UAE and Iran held face-to-face talks to de-escalate the situation.

Yields and dollar

At the time of writing this article, the US Dollar Index was hovering around 100.24, up 0.25 per cent for the day and at its highest since April 3. 

Two-year US yields were steady at 4.14 per cent, while ten-year yields at 4.53 per cent were up 3 bps for the day. 

Ten-year yields were above the crucial 4.5 per cent level for the fifth straight day.

ETF and COMEX inventory

Total known global silver ETF holdings stand at 788 MOz, down 74 MOz (~2,301 tons) or 8.58 per cent YTD. Silver holdings are currently down 44 MOz (1,369 tons) since the beginning of the Iran war on February 28. 

Registered COMEX inventory stands at 85.18 MOz, down 58 per cent from the record peak of 201 MOz seen in September.

China's silver price and stocks

Silver inventory at the Shanghai Futures Exchange stands at 895 tons, down 100 tons from the recent peak on May 20. Overall, the current inventory level is still at a decade-low level. 

Silver at the Shanghai Gold Exchange is trading at London’s equivalent price of $70.51.

LBMA lease rate

The one-month LBMA lease rate is 0.27 per cent, around the historical average of 0.3–0.6 per cent, which does not reflect any supply concerns.

Outlook

Silver is expected to continue to be under pressure unless a US–Iran deal is formally announced. 

The metal may fall to $58/$54 in the short term, while it faces strong resistance at $70. 

================================================== 

(Disclaimer: This article is written by Praveen Singh, head of commodities, Mirae Asset Sharekhan. Views expressed are his own.)