How to trade silver amid strong dollar and firmer yields? Analyst decode

Silver trading strategy: At the time of writing this article, spot silver was changing hands at $36.42, down around 1 per cent on the day

Performance:

• On July 8, spot silver traded between $36.29 and $36.89.
• The metal fell in the US session as the US Dollar and yields rose amid a flurry of tariff announcements by the US President Trump.
• At the time of writing this article, spot silver was changing hands at $36.42, down around 1 per cent on the day, while the MCX September at ₹ 107,400 was down by nearly 0.85 per cent. 

Tariff developments:

• US President Donald Trump announced his much-awaited tariff plans to impose higher rates of 25 per cent-40 per cent on key trading partners. As per the new proposition, tariffs on Japan, South Korea, Malaysia, Kazakhstan and Tunisia, would be 25 per cent, while Laos and Myanmar would face a 40 per cent rate.
• South Africa and Bosnia to face 30 per cent, Indonesia 32 per cent, Bangladesh and Serbia 35 per cent, Thailand and Cambodia 36 per cent tariffs.
• The tariff deadline has been extended from July 9 to August 1.+
• Additional tariff letters will be sent shortly.
• India and the US may reach a mini-trade deal shortly.
• US President Trump said on Tuesday that the August 1 tariff deadline will not be extended, though earlier he had said that the deadline may not be 100 per cent firm depending on the trade deal developments.
• European Commission President U₹ula von der Leyen accused China of distorting trade and limiting access for European firms. She, addressing the EU Parliament stressed the need for a genuine rebalancing.

Trump plans 50 per cent tariff on copper imports:

• On Tuesday, President Trump announced that he will be implementing a new 50 per cent tariff on copper imports.
• Commerce Secretary Howard Lutnick said that copper tariffs could go into effect in July-end/August 1

US Dollar Index and yields:

• The US Dollar Index at the time of writing was noted at 97.66 as the Index firmed up for the second straight day. It has recovered nearly 1.40 per cent from its nearly four-year low of 96.37-- to which it fell on July 1.
• Ten-year US yields rose for the fifth consecutive day as the yields at 4.42 per cent were up 4 bps.

New York Fed Survey:

The New York Fed's Survey of Consumer Expectations shows that respondents in June saw inflation at 3 per cent 12 months from now, which is at the same level as it was in January. Inflation expectations eased 0.2 per cent from May. Tariff-induced Inflation is yet to show up in most of the inflation data. Expectations at the three- and five-year horizons were unchanged at 3 per cent and 2.6 per cent respectively.

 

Upcoming data:

• FOMC minutes of the Fed’s June 18 FOMC meeting will be released on July 9.
• China's PPI and CPI data (June) will be released on July 9. 

Silver ETF and COMEX Inventory:

Total known global silver ETF holdings, currently at 773.58 MOz, are up 7.9 per cent YTD and are at a three-year high.

COMEX silver inventory at 49.80MOz is down roughly 1.40 per cent from its all-time high level of 50.50MOz recorded on May 12.

Perth Mint June silver sales:

Perth Mint June silver coins and minted ba₹ fell to 464,197 Oz from 496,197 MOz in May.

Outlook:

• The extension of tariff deadline is somewhat positive for the metal.
• Silver is getting good support from positive ETF inflows and deficit concerns.
• It is likely to do well unless and until tariff concerns start weighing on risk assets heavily.
• Dips should be treated as a buying opportunity.
• Strength in copper may support the metal. In addition, notion of a possibility of tariffs on silver imports in line with copper may also support it.
• Support is at $35.7 (₹1,05,200)/ $35 (₹1,03,200). A decisive breach of resistance at $37.50 (₹1,10,600) will open the way to $40 (₹1,17,000).  

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