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

Silver: Under pressure on a firmer US Dollar and subdued safe haven demand

Performance

On August 19, spot silver slumped for the second day in a row on firmer Dollar and subdued safe haven demand as investors positioned themselves ahead of the Jackson Hole Symposium event.

 

Weak Chinese retail sales and industrial production data (July) also weighing on the metal. Spot silver tumbled 1.74 per cent to close at $37.37 on August 19.

 

In the week ending August 15, spot silver closed with again of around 0.20 per cent at $38.01. The metal is currently trading at $37.19, down nearly 0.50 per cent for the day.

 

Silver ETF and COMEX inventory

ETF: Total known global ETF holdings of silver reached a fresh 3-year high of 792.124 MOz on August 15 as holdings rose for the second straight week. Silver ETF holdings are up 10.61 per cent YTD. Meanwhile, COMEX silver inventory surged to 507.55 MOz as of August 15, a fresh record high.

CFTC

As per weekly CFTC data, money managers reduced their bullish silver bets by 2,364 lots to 28,257 lots in the week ending August 12. 

Data roundup

US housing starts picked up as the US housing starts (July) came in at 1.428 million, a five-month high, Vs forecast of 1.29 million and the prior reading of 1.321 million, though building permits at 1.354 million lagged the estimate of 1.39 million (prior 1.393 million) and fell to the lowest since June 2020.

 

Japan’s GDP grew 1 per cent Q-o-Q in Q2, beating consensus estimates and increasing the odds of a rate hike by the Bank of Japan. Japan’s growth came from strong exports and capital expenditures.

Central Bank watch

Markets are placing 85 per cent odds for a Fed rate cut in September.Fed's Michelle Bowman, who voted for a rate cut at the July meeting, said that her stance is unchanged. 

As per Reuters, 50 of 62 economists polled by Reuters said that they expect the Bank of England to further cut the policy rate by 25 basis points to 3.75 per cent this year. Economists expect inflation to peak around current levels.

Geopolitics watch

The US President Trump asked Ukrainian President Zelensky and Russian President Putin on Monday to meet face to face with him at a peace conference. However, in an interview with Fox TV on Tuesday, he said that we will let them meet first. As per Bloomberg, a summit between Putin and Zelenskiy may take place within two weeks, but the Kremlin has yet to confirm.

Upcoming data

Jackson Hope Symposium will be held from August 21 to August 23. Investors look forward to the Fed Chair Powell's speech scheduled for August 22.

 

The US data/reports to be released this week include July 30 FOMC minutes (August 20), S&P Global US PMIs (August 21), leading Index (August 21) and existing home sales (August 21). 

 

Eurozone's PMIs will be released on August 21, while Germany's 2Q final GDP will be out on August 22. Japan will release its PMIs and national CPI on August 21 and August 22 respectively.

Silver outlook

In ultra short-term, spot silver is likely to be under pressure on reduced safe haven demand and a firmer US Dollar. Nonetheless, downside is likely to be limited by strong ETF inflows, fiscal and economic concerns and lack of any practical and long-lasting solution to the Ukraine war.

 

In very near-term, silver may test the support around $36.75 (₹1,09,500). Resistance is at $37.50 (MCX Silver September ₹1,11,700)/$38 (₹1,13,300). Next major support is at $36.21 (₹1,07,900).

 

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