Silver may stay in $54-61 range in near term amid oil swings, rate concerns

Praveen Singh, Head of Commodities at Mirae Asset Sharekhan, said oil prices fuelled inflation concerns and increased expectations of higher interest rates.

Silver erases its gains to fall on higher yields and surging oil

 

Performance

 

Silver prices came under pressure after a strong start to the week, with the metal erasing recent gains as a sharp rise in crude oil prices fuelled inflation concerns and increased expectations of higher interest rates.

 

On July 23, spot silver fell sharply after rising for four days in a row. The metal slumped on rate hike concerns as relentless rise in oil prices stoke inflationary concerns. On Thursday night, spot silver was trading at $57.44, down nearly 4 per cent.

 

Earlier, in the week ending July 23, the white metal tumbled 6.6% to $55.91 as the support around $54 was tested.

 

 

Geopolitics and oil

 

The sharp rally in crude oil has emerged as a key factor influencing precious metals. Escalating tensions in West Asia, including the possibility of further US action against Iran and attacks on shipping routes in the Red Sea region, have raised concerns over global oil supplies. Brent crude surged to the $100 per barrel mark for the first time since May, increasing worries that persistent inflation could delay interest rate cuts.

 

The US continued to strike Iran for the twelfth straight night on Wednesday. Iran, in retaliation, continues to hit US installations in neighbouring countries and has attacked desalination plant in Kuwait.

 

Iran also attacked multiple CIA centres in the Gulf with drones that has prompted the US Intelligence to investigate whether Russia has helped Iran with Kometa-M satellite navigation system to improve accuracy of its Shahed-136 drones. The US has not divulged the locations of the CIA centres, though.

 

Trump has warned to hit Iran's powerhouses and bridges should Iran attacks ships in the Strait of Hormuz. Oil supply concerns have amplified yet again following Yemeni Houthis' attacks on ships in the Red Sea as nearly 6 mbpd of crude oil transits through Bab-al-Mandeep Strait.

 

 

Data roundup

 

In a data think week, Thursday's US data showed that initial jobless claims (week ending July 18) fell from 209K to 187K (forecast: 210K), the lowest level since 1969, while continuing claims (week ending July 11) slipped from 1,798K to 1,796K (forecast: 1,809K). The Kansas City Fed Manufacturing Index eased from 11 in June to 9 (forecast: 12).

 

Central bank watch

 

As widely expected, in its monetary policy decision on July 23, the European Central Bank kept its benchmark rate unchanged. However, as some members contemplated a rate hike, the bank is expected to raise rates in September. ECB President Lagarde said that risks to the inflation outlook remain on the upside.

 

The US Federal Reserve will conclude its FOMC monetary policy meeting on July 29.

 

The Bank of England will announce its monetary policy decision on July 30. 

US to announce plans on expiring tariffs

 

US Trade Representative Jamieson Greer will soon announce the administration's tariff plans, the White House said, as the global 10 per cent baseline levy is set to expire.

 

 

 

Fed rate hike probability

 

Implied overnight futures reflect 0.92 rate hikes by September. The probability of the Fed raising rates remains elevated, as traders are pricing in 1.09 rate hikes by September, with another rate hike potentially coming as early as March next year.

 

The probability of a rate hike in September stands at 83 per cent, while the probability of a rate hike in December has increased to 93 per cent from 77 per cent a week ago.

 

ETF and COMEX inventory

 

Total known ETF holdings of gold increased for the second straight day on July 22. Holdings, currently at 96.43 Moz, are down 2.52 Moz YTD (down 2.54 per cent, or 79 tons) and have declined 4.49 Moz (4.45 per cent, or 137 tons) since the beginning of the Iran war on February 28.

 

Registered COMEX inventory, at 14.85 Moz, remains near a cycle low and is down 38 per cent from the record peak of 24.25 Moz seen in April.

 

One-month LBMA spread

 

One-month LBMA spread at 0 per cent is around long-term average of 0.3-0.6 per cent, thus, does not reflect any tightness in the markets. 

 

Upcoming data

 

Major US data due in the short term include S&P PMIs (July 24), Conference Board Consumer Confidence (July 28), real personal spending, Q2 advance GDP, and the Fed's preferred inflation gauge, the PCE Price Index (all on July 30).

 

Traders will also monitor Eurozone PMIs (July 24), along with Eurozone and Germany Q2 GDP data (July 30). UK PMIs will be released on July 24.

 

 

Outlook

 

Silver showed strength at the beginning of this week as gold recovered. In addition, ETF holdings rising by 7 Moz last week also supported the metal. However, extended sharp rise in oil prices weighed on the metal on Thursday.

 

In short-term, the metal is expected to keep its $54-$61 range as it reacts to rate hike concerns and oil gyrations, albeit with somewhat reduced sensitivity.