Silver outlook: Dovish Fed eases pressure; Mirae Asset sees support at $65

Mirae Asset Sharekhan said dovish Fed commentary has eased downside pressure on silver, but high China inventories, subdued LBMA lease rates and weak ETF flows remain concerns.

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: Recovers sharply on dovish Fed commentary

 

Pressurised by the Fed Chair Warsh' hawkish speech at the Jackson Hole Symposium on August 28, spot silver slumped nearly 10 per cent to $63.31 on September 2 before recovering sharply as a couple of Fed officials alleviated inflation concerns. A sharp decline in the Dollar Index, due to dovish Fedspeak and a sharp rally in the Yen, helped the white metal recover nearly 50 per cent of the losses it had incurred in its sharp decline in the August 28-September 2 period.

 

 

At the time of writing this article, the metal was trading with a daily gain of 2.70 per cent at $67.09.

 

Fedspeak:

 

On September 3, the New York Fed President John Williams said that there is evidence inflation continues to trend down as the impact of tariffs fades. Identifying tariffs and energy as the two biggest sources of inflation, he added that the neutral rate is around 1 per cent and impact of energy prices is not spreading to other areas of the economy. He cited investment in AI and growth expectations as the reasons behind hardening bond yields. He suggested that a 'wait-and-see' approach is appropriate as inflation expectations remain anchored.

 

Precious metals got a further boost on September 3 as Fed Governor Waller said that his decision on rates will be heavily influenced by the upcoming CPI inflation data on September 9, and he is willing to hold rates steady should inflation show a downtrend. He added that price pressures were showing signs of easing.

 

Hammack and Goolsbee will go on air on September 4, after which the Federal Reserve's two-week external communication blackout period will begin in the wake of the September 15-16 FOMC meeting.

 

Dollar Index and yields:

 

The US Dollar Index was hit severely due to dovish Fedspeak and a sharp rally in the Yen that came on increased probability that the Bank of Japan will hike rates soon.

 

On September 3, the Yen surged 2 per cent against the US Dollar to the highest in a month as a Bank of Japan official cited a possibility of back-to-back/outsized hikes. A possibility of intervention by Japan's finance ministry also supported the Japanese currency.

 

The Index at the time of writing this article was hovering around 98.98, down around 0.60 per cent for the day as it slid nearly 0.90 per cent in the last two days.

 

Yields eased on traders paring back their rate hike bets. Two-year yields at 4.32 per cent were down 0.90 per cent for the day as yields retreated sharply from the 20-month and fresh cycle high of 4.4 per cent reached on September 2. Similarly, ten-year yields softened by 0.75 per cent to 4.75 per cent.

 

Federal Reserve rate hike probability:

 

Probability of the Fed hiking rate at its September 16 meeting has declined to a coin toss (50 per cent) from 65 per cent seen a couple of days ago as traders, taking heart in comforting speeches of Fed officials Williams and Waller, pared their rate hike bets. 

 

Geopolitics and oil:

 

Crude oil prices rallied for the fourth straight day Thursday as Iran targeted US bases in Kuwait and the UAE in reaction to US strikes on Wednesday.

 

Dated Brent oil is approaching $100 on escalating tensions between Iran and the US as the two countries resumed exchanging strikes after a month. 

 

ETF and inventory:

 

Registered COMEX silver inventory at 99.31 Moz is down over ~50 per cent from the record peak of 201 Moz seen in September 2025.

 

Shanghai Futures Silver Exchange on-warrant stocks daily total is noted at 1399 tons, up 455 per cent from the cycle low of 252 tons seen in March this year. Steep rise in inventory suggests adequate supply in China.

 

One-month LBMA spread:

 

One-month LBMA lease rate around 0 per cent reflects no immediate supply crunch, which is negative for silver prices.

 

China tightens regulations on solar production

 

China has announced several regulations and policy guidelines that aim to address overcapacity in the solar manufacturing industry and stabilize market prices. Bloomberg expects market conditions to deteriorate and accelerate the closure of uncompetitive capacity. 

 

Electric car sales shares remain above 25 per cent: Electric car sales around the world made up 27 per cent of passenger vehicle sales in July, despite incentive rollbacks in key markets like the US as fuel prices have surged and vehicle charging infrastructure has expanded.

 

Upcoming event:

 

The ECB will deliver its monetary policy on September 10. It is widely expected that the Central Bank will hike the benchmark rate by 25-bps, its second interest rate hike in this cycle. ECB's one-week pre-rate decision quiet period has begun on September 3.

 

Upcoming data:

 

Major US data on deck in the near term include nonfarm payrolls (September 4), NY Fed August one-year inflation expectations (September 8), August PPI (September 10) and August CPI (September 11).

 

Traders will also monitor China's trade balance (September 8) and inflation data (September 9).

 

Outlook:

 

Dovish Fedspeak has eased downside pressure on the white metal, though fundamentals are not very encouraging, as seen in high inventory levels in China, subdued LBMA lease rate, and ETF flows.

 

The Central Bank not hiking rates despite persistent inflation for sixty-five months would once again support the narrative of owning hard assets.

 

The metal may not fall much in the near term unless the nonfarm payroll report turns out to be a blowout report or crude oil prices surge violently.

 

In this scenario, dips towards $65 could be used as short-term buying opportunities for a target of $70+. Tight stop loss is must though.  

 

Support is seen at $66-$66.30/$65/$62.90. Resistance kicks in at $68/$70.60/$72.10.