More gain ahead for silver

In the futures segment of the MCX, silver prices had fallen by 15 per cent in the Dec quarter

Spot silver prices in the international markets have risen by 8.5 per cent in the quarter ending March. In the previous one, ending December 2016, these had declined by 17 per cent. In the futures segment of the Multi Commodity Exchange (MCX), silver prices had fallen by 15 per cent in the December quarter; for the March 2017 quarter, these were up around nine per cent.

However, net long positions in silver as on April 11 numbered 98,845 contracts, when compared to 65,072 contracts as on March 21. Net longs in gold as on April 11 stood at 140,407 contracts, from 65,971 on March 21.

Gold and silver move in line; hence, any rise in gold prices will see significant momentum in silver’s. Weakness in the dollar index has had a role in lifting commodity prices, including silver. Talk of interest rates in the US, policy uncertainty with regard to the Donald Trump government and uncertainty on the outcome of elections in the European Union will be push factors for silver prices in the month ahead.

The latest holdings of the largest silver-backed exchange-traded-fund (ETF), New York’s iShares Silver Trust SLV, are 10,208 tonnes. At SPDR Gold Trust GLD, the world’s largest gold-backed ETF, at 842 tonnes, up 4 tonnes.

According to the most recently released data in the USGS 2017 Silver Mineral Commodity summary, American silver import reached an estimated record high of 6,300 tonnes in 2016, six per cent (or 400 tones) higher than in 2015, and 25 per cent higher than the annual average for 2012-2014. Interesting, as silver consumption declined considerably last year. USGS calculated that  US consumption decreased from 8,000 tonnes in 2015 to 7,230 tonnes in 2016, a decline of nearly 800 tonnes. 

The total US silver import of 6,300 tonnes accounted for 30 per cent of global mine supply in 2016, up from 21 per cent in 2012. This shows big US institutions and industries are holding physical silver for future consumption.

Global silver prices are hovering around $18.18 an ounce and Rs 41,800 for 10g on the MCX. Technically, prices are in a positive trend. It has strong support at $17 (Rs 40,500) and $15.50 (Rs 39,000) levels. Resistance could be observed at $19.50 (Rs 44,000) and $21 (Rs 47,000). We expect prices to touch Rs 44,000 in the coming months, supported by technical and fundamental factors. If it moves above Rs 44,000, the next level would be $21 (Rs 47,000) on MCX. 

As silver is moving in line with gold, and the latter’s price is going up, the demand of gold ETFs is increasing. Geopolitical tensions support the uptrend in gold, where the price is around $1,280 an ounce. It has strong support at $1,250 to $1,220 levels. Resistance could be observed at $1,330/1,360. We expect $1,330 in the next two to three months.

Weakness in the dollar index is also supporting both metals, given their inverse relation with the greenback. Another indicator, the price ratio between gold and silver ($1,280/18.20) is 70.32, meaning silver still has upsides. Generally, the ideal ratio is between 55 and 60.

The author is head of research, commodities & currencies (rech), Angel Commodities Broking