Silver near-term outlook bearish amid economic and geopolitical risks

The near-term outlook is somewhat bearish unless we see a strong and sustainable recovery in industrial commodities, says Praveen Singh

Silver: Higher in a volatile day as US yields ease

Performance:

On May 15, spot silver fell to $31.65, the lowest since April 11, on reduced safe haven appeal due to easing trade tensions as China and the US have decided to slash tariffs on each other to 10 per cent and 30 per cent respectively, which are way lower than the 125 per cent and 145 per cent rates levied earlier on each other.

 

Silver recovered in the European and the US sessions on dip buying ahead of the Fed Chair Powell's speech on the Fed's review of its monetary policy framework. Disappointing industrial production and NAHB housing data, along with softer PPI data out of the US, helped the metal recover further.

 

 

As the time of writing, spot silver was trading at $32.49, up around 0.80 per cent on the day, while the MCX July contract was at ₹95,908, up around 0.43 per cent. 

Data roundup:

The US data released Thursday was mostly disappointing. Empire manufacturing (May) came in at -9.2 versus the forecast of -8 as the Index contracted for the third straight month. US Retail Sales advance (April) at 0.1 per cent topped the estimate of 0 per cent, though the prior data was revised higher from 1.4 per cent to 1.7 per cent. Retail sales ex auto and gas at 0.2 per cent trailed the estimate of 0.3 per cent; however, the period data was revised higher from 0.8 per cent to 1.1 per cent. Retail sales control group came in at -0.2 per cent versus the estimate of 0.3 per cent as the prior data was revised higher from 0.4 per cent to 0.5 per cent. 

 

PPI final demand (April) at -0.5 per cent mm-o-m was way below the median forecast of 0.2 per cent, though the previous estimate was revised higher from 0.4 per cent to 0 per cent.PPI final demand rose 2.4 per cent y-o-y, slightly faster than the forecast of 2.5 per cent as the previous data was revised higher from 2.7 per cent to 3.4 per cent. Core PPI fell 0.1 per cent m-o-m versus the estimate of 0.3 per cent rise as the prior data was revised higher from 0.1 per cent to 0.2per cent. 

 

Core PPI rose 3.1 per cent, which was in line with the expectation; however, once again the prior data was revised sharply higher from 3.3 per cent to 4 per cent. Weekly job report was mixed as continuing claims rose less than expected whereas initial jobless claims at 229K were slightly higher than 228K. Philadelphia Fed Business outlook (May) came in at -4, slightly better than the expected figure of -11. Industrial production contracted for the first time in six months, whereas NAHB housing market index (May) tumbled from 40 to 34, lowest since November 2023. 

Trade developments:

Chinese Vice Premier He Lifeng, during his visit to Paris for the 10th China-France High Level Economic and Financial Dialogue, said that China and France oppose unilateralism and support the multilateral trading system.

 

The EU is revising its trade proposal for a potential trade deal with the US, which would provide more details on ways to lower trade and non-tariff barriers. It is to be noted that Trump quipped earlier this week that it is in many ways nastier than China.

 

Trump, without providing many details, said that Indian has offered to remove all tariffs on US goods. 

Fedspeak:

Fed Chair Powell at the FOMC 2025 review on Thursday said that longer-term interest rates are likely to remain due to economic volatility. He added that policymakers are weighing changes to key parts of the framework that guides monetary policy decisions, including how they think about US employment shortfalls and approach their inflation target as the current framework was designed at a time of persistently low interest rates and low inflation.

 

US Federal Reserve Governor Michael Barr said supply chain disruptions may boost inflation.

US Dollar and yields:

The ten-year US yields backed off after rising to almost 4.55 per cent. At the time of writing, ten-year US yields were 4.45 per cent, down nearly 2 per cent on the day, as traders boosted bets on Fed rate cuts following soft PPI and disappointing US NAHB and industrial production data. Similarly, 30-year yields almost touched 5 per cent before easing to 4.91 per cent, down around 1 per cent on the day. The US Dollar Index at 100.92 was down around 0.10 per cent on the day as US yields eased.

ETF:

Total known global silver ETF holdings stand at 735.52MOz, up around 2 per cent  YTD. COMEX silver inventory: As of May 14, COMEX silver inventory stands at 502.874MOz, which is close to the all-time high level of 505 MOz observed on May 12.

Upcoming data:

Today's major data on card include US housing starts, Import price Index and University of Michigan sentiment and inflation expectations. 

Outlook:

If gold weakens, the white metal may test the key support around $31.28 (MCX July silver contract ₹92,300). Recovery in silver with respect to gold has been somewhat below expectations as the ratio continues to hover around 99. Support at 97 continues to hold, which shows that economic and geopolitical risks abound. 

 

Interim support is at $31.92/$31.65. Resistance is at $32.76 (₹96,700) /$33.25 (₹98,100). Near-term outlook is somewhat bearish unless we see a strong and sustainable recovery in industrial commodities

 

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