Silver to trade with negative bias but likely to rise in coming months

Silver: Vulnerable due to trade war but likely to be highly volatile

 

Performance:

 

Silver prices are down nearly $5 from the cycle peak of $34.59 made on March 28, which amounts to a huge decline of around 15 per cent.

 

On April 8, the white metal tried to recover in line with gold and risk assets as investors were hopeful that some of the trade tensions could be resolved through mutual deals, more so as some nations tried to initiate negotiations to diffuse trade tensions; however, the US President announcing additional 50 per cent tariff on China in retaliation to its 34 per cent tariff on US good, impaired the risk appetite. Consequently, spot silver closed 0.75 per cent lower at $29.79. It closed below $30 for the first time since January 14.    

 

 

Tariff developments:

 

President Trump has planned negotiation with interested individual countries with Japan being given priority to reach deals that may mutually reduce tariffs. US Treasury Secretary Scott Bessent said that there is a potential for mutually beneficial deals with major US trading partners. He added that nature of agreements could be different than standard trade deals, incorporating projects like energy deal in Alaska, but not all the new tariffs may be rolled back. Trump will have maximum negotiating leverage as reciprocal tariffs will come into effect from April 9.

 

It is to be noted that there is a possibility of a significant energy deal in Alaska where Japan, South Korea and Taiwan could take a lot of the offtake.

 

Stephen Miran, White House Council of Economic Advisers Chair, said that defense could also be a component of new deals. As per Commerce Secretary Lutnick, analysis for the reciprocal tariffs came from the Council Economic Advisers. Risk assets recovered sharply on Tuesday after falling sharply in the last three days; however, assets came under renewed intense downside pressure on talks of 104 per cent tariffs to be levied on China. 

 

US data:

 

Consumer credit (February) came in at -$0.81 billion; thus, falling short of the forecast of $15 billion while the prior data was revised lower from $18.04 billion to $8.90 billion. The decline is driven by a sharp pullback in credit card balances and decline in motor vehicle and other revolving loans as high borrowing costs and elevated inflation discourage consumers. NIFB small business optimism (March) at 97.4, lowest since October, as it trailed the median estimate of 99.

 

Upcoming data:

 

Investors look forward to FOMC minutes (March 19 meeting) to be released on April 9. US CPI (March) is slated to be released on April 10.

 

US Dollar Index and yields:

 

The US Dollar Index fell to 101.26 on April 3 as Trump unveiled reciprocal tariffs, which amounts to a decline of around 9 per cent from the cyclical peak seen in January. However, since then, the index has recovered around 1.50 per cent in line with the US yields. US bonds rallied quite sharply on growth concerns stoking safe haven demand due to much severe than expected reciprocal tariffs. Ten-year yields fell to 3.86 per cent on April 7, lowest since October 4. However, since then, yields have recovered sharply as investors went in 'sell everything' mode to raise cash to meet margin calls as margin calls rose the most since Covid days. Surging inflation expectations may also have played a part in pushing yields higher. On April 8, ten-year US yields closed with a gain of 1.72 per cent at 4.27 per cent, highest since March 27. The two-year US yields fell to 3.43 per cent on April 7, lowest since September 2022. Two-year yields closed 1.45 per cent lower at 3.73 per cent on April 8 as traders boosted wager on aggressive rate cuts by the Fed.

 

The US Dollar Index at 102.82 was down 0.48 per cent on Tuesday. 

 

Gold/Silver ratio:

 

Gold/Silver ratio surged to 105.64 on April 7, a five-year high, as silver has been hit hard on its industrial demand aspect. The ratio may surge to 110-112 in the coming days on raging trade war.

 

Silver in London vaults:

 

As at end of March, silver in London vaults stood at 22,127 tonnes of silver, down 1.5 per cent m-o-m.

 

ETF:

 

Total known global silver ETF holdings stood at 718.862 MOz as on April 4. Holdings are up nearly 0.2 per cent YTD.

 

COMEX inventory:

 

COMEX silver inventory at 492.04 Moz is at a record high on investors' delivery demand. Support and resistance Gold support is at $2955/$2947/$2880.  ALSO READ | Gold to face short-term pressure amid risk aversion and profit booking

 

Outlook:

 

Silver is likely to trade with a weakening bias unless some positive developments on tariff front calm the frayed nerves of investors as demand is likely to hit on a deteriorating global economic outlook. Tumbling copper is a source of concerns for silver buyers. That silver trade flow may reverse taking the metal back from New York to London as Trump has not levied any duties on the metal is yet another risk to the price of the metal.

 

But for positive developments concerning tariffs, the white metal may test the key support around $28 (MCX May silver contract Rs 83,000) in the coming days. Interim support is at $29 (Rs 86,000). Resistance is at $30.90 (Rs 91,600) /$31.43 (Rs 93,200). At the same time, it may rise quite sharply in case China and US show willingness to strike a trade/strategic deal; thus, huge volatility is not ruled out. 

 

While silver may fall further in short term, we look for significantly higher prices in the coming months. 

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