Silver prices may test $40 resistance; firm dollar, trade news pose risks

Silver is well-supported by strong ETF inflows, but a firm dollar and trade news flow pose a risk to the metal prices, analyst says

Silver: Down for the second day as Dollar extends its rally

Silver Performance:

On July 15, spot silver traded between $37.50 and $38.38. The metal slipped for the second straight day on a stronger US Dollar. At the time of writing this article, spot silver was changing hands at $37.67, down by 1.2 per cent on a daily closing basis. The corresponding MCX September Silver contract at 111,329 was down by nearly 1.50 per cent.

Data roundup:

Much-awaited US CPI report did not offer much comfort on the rate cut front as US CPI in June rose by 0.25 per cent month-on-month (m-o-m), which matched the estimate; it accelerated from a 0.1 per cent M-o-M rise in May. 

 

 

CPI Y-o-Y was up 2.7 per cent versus the forecast of 2.6 per cent (prior 2.4 per cent). Core CPI rising 0.2 per cent m-o-m as against the expectation of a 0.3 per cent rise, was reassuring, but core CPI Y-o-Y rose 2.9 per cent, which matched the forecast. The CPI report showed that companies are beginning to pass some tariff-related costs, especially in items like apparel, furniture, etc., to consumers. Traders pared their rate cut expectations on the CPI report.

 

China's data dump on July 15 presented a somewhat encouraging economic scenario as Q2 GDP Y-o-Y came in at 5.2 per cent versus the forecast of 5.1 per cent, while industrial production (June) accelerated by 6.8 per cent versus the estimate of 5.6 per cent (prior 5.8 per cent); however, retail sales (June) rose by 4.8 per cent Y-o-Y, which trailed the estimate of 5.3 per cent (prior 6.4 per cent).  

 

The property market continues to struggle. Property investment YTD registered a decline of 11.2 per cent as against the expectation of -10.90 per cent, as residential property sales YTD declined 5.2 per cent Y-o-Y (prior -2.8 per cent). New home prices dipped 0.27 per cent in June, thus extending the streak of declining prices to 25th straight months.

 

Elsewhere, Canadian CPI showed the first acceleration in four months and rose at a 1.9 per cent yearly pace in June, as compared with an increase of 1.7 per cent in May.

Tariff developments:

Canadian PM Carney said that he sees trade talks with the US intensifying.

 

President Trump said that the US and Indonesia have secured a great trade deal. Indonesia will pay 19 per cent tariffs on its exports to the US, while US goods will not attract any import duties. It is to be noted that he slapped 35 per cent tariffs on Indonesia a week ago.

 

Brazil said that it will intensify trade deal talks with the US.

 

Nvidia and AMD to resume AI chip sales to China: Nvidia Corp. and Advanced Micro Devices Inc. plan to resume sales of some AI chips to China after Washington's assurances that such shipments would be approved. The US decision is a reversal from its earlier stance that aimed at limiting Beijing's AI ambitions.

 

US treasury Secretary Bessent said that markets should not worry about the US-China trade deadline of August 12.

US Dollar Index and yields:

Buoyed by elevated CPI inflation data and trade deal hopes, the US Dollar Index extended its rally to the seventh straight day. The Index, at the time of writing this article, was hovering around 98.60, up around 0.5 per cent for the day.

 

Ten-year US yields at 4.47 per cent were up around 0.86 per cent, while thirty-year yields, up around 0.59 per cent for the day, were knocking at 5 per cent. Two-year US yields at 3.94 per cent were up by more than 1 per cent. Long-term yields are rising globally once again. 

ETF and COMEX silver inventory:

As of July 14, total known global silver ETF holdings stood at 770.09 MOz, as holdings declined by nearly 6MOz (around 187 tons) in the last two days. Nonetheless, holdings are still at a 3-year high. Silver ETF holdings have grown by 7.5 per cent YTD.

 

COMEX silver inventory at 496.62 MOz is nearly 2 per cent down from the record level of 496.62 MOz.

India’s silver investment demand soars:

Reuters reported India’s silver ETFs attracted inflows of a record 20.04 billion rupees in June, up around 150 per cent from May, data from the Association of Mutual Funds in India showed. In Q2, silver ETFs attracted inflows of 39.25 billion rupees, which outpaced the 23.67 billion flowing into gold ETFs.

Silver outlook:

Silver is well-supported by strong ETF inflows. Due to the depleting inventory level at LBMA warehouses, the annualised lease rate for one month is above 6 per cent, which indicates a tight market. Firm Dollar and trade news flow pose a risk to the metal prices.

 

A decisive breach of the crucial support at $37.50 will open the way for the test of support around $37.10 (Rs 110,000). Buying the dips is advisable on ETF inflows and in a tight market.

 

Next support is around $36.75 (₹108,600). Resistance is at $38.50 (₹113,800)/$39.14 (₹115,600). Overall, the metal is likely to test the psychological resistance at $40 (₹118,000) unless risk appetite weakens significantly. 

 

(This article is by Praveen Singh, senior fundamental research analyst- currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)