Silver faces short-term pressure; strong ETF inflows to lend support

Silver: Good opportunity to accumulate

Performance:

Spot silver slumped 3 per cent on July 30 and extended its decline to July 31. Silver has been hit hard on dwindling rate cut expectations and stronger US Dollar. At the time of writing this article, the grey metal was changing hands at $36.64, down 1.3 per cent for the day as it fell to $36.21, lowest since July 1, before erasing some of its losses.

Weak data out of China are also weighing on the metal. China's manufacturing PMI (July) underwhelmed as it came in at 49.30, lowest since January and lower than the estimate of 49.70 as the manufacturing activities contracted for the fourth consecutive month, while services sector barely expanded as the non-manufacturing PMI fell from 50.50 to 50.10, lowest since November 2024.

 

Data roundup:

US PCE Price Index (June) rose 0.3 per cent month-on-month (M-o-M) matching the forecast of 0.3 per cent but higher than the revised 0.2 per cent increase observed in May, while year-on-year (Y-o-Y) increase was 2.6 per cent vs the forecast of 2.5 per cent, which was higher than the revised 2.4 per cent increase in May.

Core PCE registered an increase of 0.3 per cent M-o-M, which was in line with the forecast of 0.3 per cent, but was higher than the prior reading of 0.2 per cent. Core PCE Y-o-Y at 2.8 per cent moved further away from the Fed's target of 2 per cent as it turned out to be hotter than the expected reading of 2.7 per cent as even prior data was revised higher from 2.7 per cent to 2.8 per cent. Employment cost index Q2 at 0.9 per cent was higher than the estimate of 0.8 per cent.  ALSO READ | Gold prices to drop? Analyst decodes near-term strategy amid tariff threats 

Initial jobless claims and continuing claims were lower than their respective forecasts.

Earlier, US data released on July 30 showed that pickup in net exports added 5 per cent to GDP growth in Q2, which boosted the inflation-adjusted US growth to an annualised pace of 3 per cent in Q2 vs the forecast of 2.6 per cent. However, the economic growth in the first half of 2025 averaged merely 1.25 per cent, slower than the 2024 pace. Final sales to private domestic purchases rose 1.2 per cent in Q2, the slowest growth since the end of 2022. ADP employment change came in at 104K vs the forecast of 76K.

FOMC monetary policy decision:

The Fed's monetary policy decision announced on July 30 was somewhat hawkish.

The Central Bank kept the rates unchanged at 4.25 per cent-4.50 per cent. The Fed Chair said that they have not made any decisions regarding the September meeting as more data are needed to act amid uncertainty over tariff impacts.

Odds of September rate cut have dipped to below 50 per cent.

US Dollar Index and yields:

The US Dollar Index firmed up on hawkish FOMC outcome. At the time of writing, the Index was hovering around 99.97, up 0.15 per cent on the day, and at a 2-month high.

Notwithstanding positive US data, ten-year US yields dipped 3 basis points (bps) to 4.34 per cent; 30-year yields eased by 2 bps to 4.88 per cent, too.

Tariff developments:

Trump's tariffs on Mexico have been delayed 90 days as trade talks will continue. It is to be noted that the US, citing fentanyl smuggling, has slapped 25 per cent tariffs on Mexico.

The US has levied a 15 per cent tariff on South Korea and has also included major investments in American energy and shipbuilding in the trade agreement. The Trump administration has imposed 40 per cent tariffs on Brazil and has called the tariffs as necessary as the administration sees Brazil's policies threatening US national security.

President Trump was not hopeful on a trade deal with Canada as the nation prepared to recognise a Palestinian state.  ALSO READ | Trump issues order imposing tariffs on 69 nations - Check Full List Here

Challenge to Trump's tariffs:

A group of small businesses and states have challenged the legality of Trump's tariffs in a court as they argued that no emergency exists to allow the President to skip legal steps to impose tariffs.

The US Court of Appeals for the Federal Circuit in Washington heard oral arguments on Thursday, but it may take weeks to deliver the verdict. Even then the case may drag on for months as it may finally end up at the US Supreme Court. The Trump administration has used the International Emergency Economic Powers Act (IEEPA) to impose tariffs.

Gold/Silver ratio:

Gold/Silver ratio at 89.96 has recovered nearly 5 per cent after it reached a seven-month low at 85.88 on July 14.

Silver ETF Holdings and Comex Inventory:

As of July 30, total known ETF holdings of silver stood at 790.01 MOz, a 3-year high on investors' interest. Silver holdings are up over 9 per cent year-to-date (YTD).

Comex silver inventory at 504.33 MOz is near the record high of 505 MOz observed on May 12. Gold/Silver ratio at 89.96 has recovered nearly 5 per cent after it reached a seven-month low at 85.88 on July 14.

Upcoming data:

Today, US nonfarm payroll report (July) will be released. The report will be crucial as investors look for clues to Fed rate cuts. A weakening job market would increase rate cut odds.

In addition, ISM manufacturing (July) and University of Michigan sentiment and inflation expectations (July final) data will also entertain investors.

Outlook:

Weak Chinese data is a negative factor for the metal. Firm US Dollar and weakness in industrial commodities support the bearish case. Huge ETF inflows and restrained US yields are positive factors.

Medium-to-long term fundamentals remain bullish. A re-test of the crucial support at $35 (MCX September Silver contract) is possible. Now, $37.50 (₹1,12,500) will act as a strong resistance.

A dip towards $35 should be used for accumulating the metal for medium-to-long term horizon. For ultra short-term trading, selling into rallies with a tight stop-loss is advisable. Geopolitical developments concerning Russia and volatility in the domestic currency need to be monitored.  (Disclaimer: This article is by Praveen Singh – associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)