Hawkish Fed may drag Silver towards Rs 88,500; here's your trading guide

Performance

The white metal tumbled to four-day low on May 23 on hawkish FOMC minutes, which were released on May 22. Silver at $30.12 was down over 2 per cent at the time of MCX closing as the corresponding MCX July contract at Rs 90305 was down 2.91 per cent on the day.

The FOMC minutes of the Fed policy meeting concluded on May 1 revealed that most of the Fed officials were leaning towards higher for longer rate regime as some of them even pondered over whether the rates were restrictive enough to bring down inflation to the Fed’s target of 2 per cent.

Geopolitical watch
 

China started two days of military drills in the water and airspace around Taiwan as William Lai Ching-te took his oath as president of Taiwan. China’s show of strength is in response to Lai’s comments in which he asked China to stop intimidation of Taiwan.

Yields and Dollar
 

The US yields fell as the ten-year yields softened by nearly 1 per cent to 4.445 per cent, whereas the two-year yields were down around 1.50 bps. Dollar perked up on Fed’s Kashkari’s hawkish comments.

Data round up
 

The US data released on Thursday was better than expected that revived concerns that the Fed may not cut rates as aggressively as previously thought.

S&P Global US manufacturing PMI (May preliminary) came in at 50.90 Vs the forecast of 49.90, while services PMI was noted at 54.80 as against the forecast of 51.20; thus, composite PMI at 54.40 was way above the forecast of 51.20 as it hit the highest level since April 2022.

New home sales (April) trailed the forecast, whereas initial jobless claims (May 18) at 215K were better than the expected data of 220K.

Earlier in the day, PMIs out of Europe were released. The UK's and the Euro-zone's PMIs data were mixed.

Inventory
 

COMEX silver inventory stood at 297.747 MOz, the highest level in at least the last one and a half years.

ETF holdings
 

Total known global silver ETF holdings fell for the second day on May 22 to 696.918 Moz.

Outlook
 

The metal has fallen sharply from its cyclical high of $32.51 hit on May 21. Considering the fact most of the crucial US data released after the May 1 FOMC meeting have been underwhelming, the selloff on FOMC minutes is somewhat overdone. These data include nonfarm payroll, retail sales, ISM service(April) unexpectedly fell into contraction zone. So, the strength shown in S&P Global US PMIs needs to be corroborated by upcoming US data. Silver may fall to $29.50 (Rs 88,500) in near term, which should be treated as a good opportunity for medium to long term. Major support is at $28. Resistance is seen at $31 (Rs 93,000). 

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