Akshaya Tritiya, May 10: Silver prices up despite hawkish Fed; buy the dips

Performance

Spot silver rallied sharply higher Thursday as the US yields dipped on weaker than expected US weekly job data. Weak job data bolstered the speculation that the weakening economy would force the US Federal Reserve to cut rates.

Spot silver rose nearly $1 from its day’s low of $27.28 to its day’s high of $28.20. Corresponding MCX July contract prices were Rs 83,100 and 84,575 (LTP) respectively. The MCX July contract was up nearly 1.89 per cent. Spot silver was up nearly 3 per cent Thursday.

Geopolitical watch

Constant shelling has been reported in Rafah as thousands flee the city. The US President Joe Biden said the US would not supply weapons to Israel if it launched a major offensive in Rafah; however, he added that it would still give Israel weapons it needed to defend itself.

Data round up

US weekly jobless surged to the highest level since August as weekly claims came in at 231K versus the forecast of 212K, and continuing claims were noted at 1785K versus the forecast of 1782K. 

The weekly jobless claims data is yet another data supporting the possibility of a weakening job market, though it was a week in which New York schools were closed; thus, applications by school workers could have distorted the data. 

Yields and Dollar

The ten-year yields, which were up throughout the day, fell nearly 2 bps to 4.47 per cent. The US Dollar Index softened by 0.28 per cent to 105.26.

Inventory

COMEX Silver inventory stands at 296,978 Moz currently as compared to 295.649 Moz last week.

ETF holdings

Total known global silver ETF holdings currently stand at 692.485 Moz as compared to 692.825 Moz seen at the end of the last week.

Fedspeak

Fed’s Collins said on Wednesday that the US economy needs to be weaker to achieve a 2 per cent inflation goal.

World Silver Survey 2024

Demand for silver in industrial applications set a new high in 2023 at 654.4 million ounces (Moz), Silver Institute said in its latest World Silver Survey report. 

Demand was underpinned by green economy applications such as photovoltaic (PV) capacity additions and faster adoption of new-generation solar cells raised global electrical and electronics demand by 20 per cent.

In addition, power grid construction and automotive electrification also contributed to the gains. As per the survey, total silver demand in 2023 declined 7 percent to 1,195 Moz in 2023, but the metal was in a deficit for the third consecutive year.  

Outlook

Silver prices has rallied nearly 6 per cent this week despite hawkish Fedspeak. Healthy risk appetite continues to support it. It faces next resistance at $28.35 (Rs 85100 MCX July contract)/$28,90 (Rs 87000 MCX July contract), whereas support is at $17.90/$27.49. Buying the dips is a preferred option as long as US yields remain subdued. The ten-year yields moving above 4.53 per cent may lead to a sharp correction in prices.

(Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own)