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Silver: Bears eye $28 on the Fed's hawkish shift
Silver Performance:
Spot silver tumbled 3.85 per cent on Wednesday to close at $29.36 as the US Federal Reserve pressed hawkish pause button in its monetary policy decision at Wednesday night.
The metal, at the time of writing this report, is changing hands at $28.97, down 1.36 per cent on the day.
The MCX Silver March contract is at Rs 87,240, down 3.50 per cent on the day.
Central Bank Watch: Bullish for the US dollar
As expected, the US Central Bank cut the Fed Fund rate by 25 bps to 4.25-4.50 per cent range and signalled a temporary pause in its rate cut spree as its economic dot plot shifted higher on new projections.
The FOMC sees core PCE inflation at 2.8 per cent, 2.5 per cent and 2.2 per cent in 2024, 2025 and 2026, respectively as compared to 2.6 per cent, 2.2 per cent and 2 per cent, respectively, seen in September projections.
It revised 2024, 2025, and 2026 GDP growth rate are 2.5 per cent (previous forecast in September 2 per cent), 2.1 per cent (previous 2 per cent) and 2 per cent (previous 2 per cent), respectively, whereas the unemployment rate is projected to be 4.2 per cent, 4.3 per cent, and 4.3 per cent as compared to the previous forecasts of 4.4 per cent, 4.4 per cent and 4.3 per cent, respectively. Consequently, the Bank sees two rate cuts in 2025 and 2026 each as compared to 4 cuts in each of these years as forecasted in September.
Bank of Japan kept, as expected, kept the benchmark rate unchanged in its monetary policy meeting on November 19 as the BoJ Governor Ueda hinted at a later rate hike. Yen tumbled.
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The Bank of England went for a dovish pause to keep the rate unchanged in its monetary policy decision taken on November 19. The Bank is expected to cut rates in 2025.
Overall, the central banks' decisions are positive for the US Dollar Index, thus bearish for the metal.
Data roundup:
The US data released on Thursday showed that the US GDP Q3 annualised was revised higher from 2.8 per cent to 3.1 per cent in the final reading as core PCE price index Q-o-Q at 2.2 per cent beat the forecast of 2.1 per cent. Both initial jobless claims and continuing claims dipped from the prior readings and were lower than their respective estimates.
US yields and the Dollar Index:
The US yields extended their rise on the US data. The ten-year yields surged past the key psychological resistance of 4.5 per cent and were at 4.58 per cent, up 1.8 per cent on the day, at the time of writing this report. Similarly, the US 2-year yields, at 4.36 per cent, reached the highest level since November 25, before retreating to 4.30 per cent. The US Dollar Index surged to 108.46 on November 19, more than a two-year high, in the wake of the hawkish FOMC and US GDP data.
Upcoming data:
Markets will closely monitor the US PCE deflator inflation data to be released today as it is the Fed's preferred gauge of inflation.
ETF:
Total known silver ETF holdings stood at 711 Moz as on December 18, the lowest level since July 23, 2024. Silver ETF holdings are down around 4.60 per cent from the cycle high of 744 MOz on November 1.
COMEX silver inventory was noted to be 310.61Moz as on December 18, the highest level since November 15.
Silver Outlook:
Silver has fallen to the lowest level since September 12. The metal is weighed down by challenging economic scenario as China's economy continues to struggle while stimulus details are still elusive.
Declining ETF holdings are also bearish for the metal.
The metal may test support at $28.44 (Rs 85,600)/$28 (Rs 84,300). Resistance is at $29.62 (Rs 89,200)/$30 (Rs 90,300). However, as it is looking somewhat oversold currently, caution is warranted in selling.
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Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.