Silver trading: White metal well-placed to rally further, says analyst

Silver trading strategy: The metal, at the time of writing, was trading at $36.75, up 1 per cent on the day, while the corresponding MCX Silver contract, gaining 1.45 per cent was noted at ₹1,08,825

Silver Trading strategy:

Performance:

• On July 9, spot silver traded between $36.35 and $36.9.
• The metal, at the time of writing, was trading at $36.75, up 1 per cent on the day, while the corresponding MCX Silver contract, gaining 1.45 per cent was noted at ₹1,08,825.
• Silver gained on silver ETF inflows and a reasonably healthy risk appetite as risk assets were mildly bid.

Tariff developments:

• On Wednesday, US President Trump threatened Brazil as the latest addition to his list of countries to be subjected to reciprocal tariffs. Brazil has been slapped with an outsized tariff of 50 per cent that will come into effect from August 1. Bloomberg estimates the damage due to the proposed tariff to be around 1 per cent of GDP with a possible recession in the second half. Brazil's President Lula said that proposed 50 per cent tariffs will trigger the country's economic reciprocity law that allows trade, investment and intellectual property agreements to be suspended against countries that harm Brazil's competitiveness.
• The European Union is striving to seal a preliminary deal with the US to lock in a 10 per cent tariff rate before the August 1 deadline.
• So far this week, the US President has warned 22 countries with tariffs ranging from 20 per cent to 50 per cent as key economies like Japan, South Korea and Brazil have also been targeted.

US Dollar and yields:

• During the day, the US Dollar Index swung between 97.27 and 97.92, and extending its winning streak to the fourth straight day was up around 0.2 per cent on the day as it hovered around 97.74.
• US ten-year yields rose by 2 bps to 4.36 per cent.

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Data roundup:

• The US weekly job report was encouraging as weekly jobless claims (July 5) fell from 2,35,000 to 2,27,000 against the estimate of 2,35,000, while continuing claims (June 28) at 19,65,000 matched the forecast of 19,65,000.
• China's PPI (June), released on July 9, came in at -3.6 per cent -- worst since August 2023-- against the forecast of -3.3 per cent (prior -3.3 per cent), as factory deflation continued for the thirty third month in a row. The consumer price index (CPI) at 0.1 per cent topped the estimate of -0.1 per cent (prior 0.1 per cent), though the outlook remains uninspiring.

ETF and COMEX inventory:

• Total known global silver ETF holdings surged to 775.19 MOz on July 9, a fresh cycle-high, and are now at the highest level since August 2022. Silver ETFs are up nearly 59 Moz this year, up 8.24 per cent year-to-date (YTD) as ETFs have recorded inflows for eight consecutive weeks.
• COMEX Silver inventory at 49.72MOz is down 1.54 per cent from the all-time high level of 50.50MOz reached on May 5.

Outlook:

• Currently, strong ETF inflow is the most crucial factor supporting silver prices. In addition, that risk appetite remains somewhat healthy is also supportive for the grey metal. 
• Although, open Interest (OI) in COMEX September contract has come down from 132.62K contracts on July 3 to 1,25,70,000 contracts presently, overall, OI remains quite high, which may lead to a furious short-covering rally if silver breaches the key resistance at $37.5.
• A move above $37.5 (₹1,11,000) will put $40 (₹1,18,000) in focus.
• Support is at $35.70 (₹1,05,700)/$35 (₹1,03,600).
• Dip buying with a tight stop-loss continues to be the preferred strategy.  

(Disclaimer: This article is by Praveen Singh, head – commodities and currencies (Fundamental Research), Mirae Asset Sharekhan. Views expressed are his own.)