Tariff, yields, and trade war: Here's why silver is poised for more upside

Silver- Up as gold rallies and US Dollar Index, yields fall

 

On April 16, spot silver traded between $32.28 and $33.11. The white metal closed with a strong gain of 1.57 per cent at $32.90 as gold surged and the US Dollar Index and yields slumped.  Silver is up nearly 17 per cent since its cycle low of around $28.15 made on April 4. Although it is lagging gold, it is up around 14 per cent YTD.

 

Trade war intensified with the Trump Administration looking into imports of computer chips, chip making equipment and pharmaceuticals. The US Department of Commerce seeks public comments within three weeks.

 

 

Although President Trump delayed reciprocal tariffs for 90 days, except for Chinese exports, he still plans to impose tariffs on pharmaceutical drugs, lumber, copper and computer chips. The Commerce Department is investigating how imports of computer chips, related equipment and products that contain them (which include cars, refrigerators, smart phones, etc.) - affect national security so that the possible threats could be curbed with imposition of tariffs.  Also Read: Gold prices rise ₹10 to ₹96,180; silver up ₹100, trading at ₹100,100 today

 

Relief on exemption of electronics from reciprocal is fleeting as pharmaceuticals, semiconductors and autos will be subjected to sector specific tariffs. The US wants to make its own drugs. More than 70 per cent of the active pharmaceutical ingredients used to make medicines in the US are produced in other countries. Although the US produces nearly 20 per cent of all pharmaceuticals globally, it consumes about 45 per cent, much more than any other country.

 

As per a fact sheet released by the Trump Administration on Tuesday, China now faces up to a 245 per cent tariff (125 per cent reciprocal tariff, 20 per cent tariff for fentanyl issues, section 301 tariffs on specific goods, between 7.5 per cent and 100 per cent) on imports to the US because of its retaliatory actions.

 

Meanwhile Canada scrapped tariffs for automakers as long as the companies keep making vehicles in Canada.

 

Dollar Index and yields:

US Dollar Index tumbled once again as NVidia Corp. and Advanced Micro Devices Inc. said that Trump's Administration has curbed the export of their chips to China. New restrictions on semiconductor exports to China will affect NVidia's H20 chip and AMD's MI308 chips unless they secure a license. The US Dollar Index fell to 99.28, down around 0.93 per cent on the day, as it continues to hover around its 2-year low.

  Ten-year US yields have softened significantly from 4.59 per cent level seen on April 11. Yields closed around 1.68 per cent lower on the day at 4.26 per cent. Similarly, two-year yields at 3.77 per cent were down nearly 2 per cent on the day.

 

WTO slashes global trade forecast:

The World Trade Organization slashed its forecast for global trade this year due to economic uncertainty amid escalating trade war. The Organization expects the Volume of world merchandise to trade to decline by 0.2 per cent in 2025, which is a decline of roughly 3 per cent from the volume it expected without the trade war. The contraction may worsen to a decline of 1.5 per cent if the US goes ahead with the reciprocal tariffs. The WTO forecasts global trade to rebound by 2.5 per cent next year.

 

Data roundup:

US retail sales rose 1.4 per cent m-o-m in March, the most in over two years as consumers rushed to buy cars and electronic goods before the tariff deadline of May 3 for finished vehicles and on parts. Gains were observed in 11 out of 13 categories as sales of building materials, sporting goods and electronics also climbed. It is to be noted that many of these products are supplied by China. Control-group sales rose by 0.4 per cent in March. Industrial production lagged the forecast.

 

UK inflation (March) came in at 2.6 per cent y-o-y Vs the forecast of 2.7 per cent, which raises odds of a rate cut by the Bank of England. Even m-o-m data at 0.3 per cent was cooler than the expected readings of 0.4 per cent.

 

China’s GDP grew 5.4 per cent in the first quarter from a year ago, more than the forecast of 5.2 per cent as both production and consumption indicated picked up. Even industrial production and retail sales data were encouraging, but market has largely brushed aside these positive data as these data reflect the economic scenario of the period before the beginning of the trade war

 

Silver demand:

Per Silver Institute, silver industrial demand rose 4 percent in 2024 to 680.5 million ounces (Moz), reaching a new record high for the fourth consecutive year. Demand rose on green economy transition which includes investment in grid infrastructure, vehicle electrification, and photovoltaic (PV) applications. The metal benefitted on end-uses related to artificial intelligence (AI), too. Silver market recorded a structural market deficit of 148.9 Moz in 2024.

 

Upcoming data:

Today's US data include housing starts (March), weekly job data and Philadelphia Fed Business Outlook (April).

 

Upcoming even:

Today, the ECB will deliver its monetary policy wherein it is expected to slash rates by 25 bps.

  Powell's speech:

The Fed Chair Powell, in his much-awaited speech on economic outlook at the Economic Club of Chicago, said that tariffs present a challenge to the Fed, but they would like to wait further before adjusting the monetary policy. He maintained his stance that the US economy is solid despite growing downside risk. As he dampened rate cut hopes, risk assets fell further, and perceived credit risk climbed higher that pushed gold further up.   

 

ETF:

Total known ETF silver holdings stood at 717.153 MOz as on April 15 as holdings are up nearly 11, or nearly 1.5 per cent, MOz YTD.

 

Outlook:

Silver can keep on doing well as long as gold is rallying as risks to the economy loom large. Blow to global trade flows and growing possibility of recession in the US are negative factors for the metal. The metal may benefit in case China and the US reach a reasonable trade deal.

 

Gold/Silver ratio above 100 poses a risk to silver prices as it indicates troubles with the global economy. The ratio may rise to 110-112 in the coming weeks.

 

Silver needs to take out strong resistance at $33.12 (MCX May silver Rs 97,000) to make a run towards $34 resistance (Rs 99,000). Overall, buying into dips with a tight stoploss is advisable. Support is at $32.52 (Rs 95,300) /$32.20 (Rs 94,300).  

 

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