Sharekhan suggests buying silver on dips amid geopolitical concerns

Silver: Dip buyers emerge on geopolitical jitters

 

Performance:

On November 28, spot silver underwent a selloff in the Asian session on a stronger dollar; however, it managed to find a support around the cycle low of $29.66 (November 14 low). It closed with a gain of around 0.66 per cent at $30.27.

 

Russia targeted Ukraine’s power systems in a new air strike with 91 drones and 97 missiles and warned of attacks on decision-making areas in Kiev. 

 

The intraday range was $29.64-$30.30.

 

Geopolitics:

President Vladimir Putin warned on Thursday that his forces could strike decision-making centres in Kyiv with new ballistic missiles in response to attacks on Russia with Western missiles.

 

A senior Biden administration official told reporters that Ukraine should look hard at lowering the recruiting age for its military to boost manpower and counter Russia's progress. 

 

President-elect Trump is considering Keith Kellog as a special envoy for Ukraine. The latter had earlier presented a plan to end the war by freezing the battle lines and forcing Russia and Ukraine to negotiate. 

 

Data roundup:

On Thursday, Germany's consumer price index (CPI) (November preliminary) came in at 2.2 per cent year-on-year (Y-o-Y) (forecast 2.3 per cent) and -0.2 per cent month-on-month (M-o-M) (forecast -0.7 per cent), whereas the Eurozone's consumer confidence (November final) at 5.3 trailed the forecast of 6.5.

 

The US data deluge on Wednesday turned out to be mixed. The personal consumption expenditure (PCE) data (October) were in line with the forecast, though some of the readings accelerated from the October readings on pick up in core services inflation. 

 

PCE price index rose 2.3 per cent Y-o-Y, core PCE price index was up 2.8 per cent Y-o-Y (prior reading 2.70 per cent), PCE price Index gained 0.2per cent M-o-M and was up 2.3per cent Y-o-Y from 2.1 per cent in September. Core services prices climbed 0.4 per cent M-o-M, the most since March. 

 

Real consumer spending (October) came in at 0.1 per cent, trailing the forecast of 0.2 per cent; however, the September reading was revised higher. Third quarter annualized GDP at 2.8 per cent matched the forecast. Durable goods orders (October preliminary) at 0.2 per cent trailed the estimate of 0.5 per cent. 

 

Initial jobless claims were slightly lower than the forecast and the prior data, but continuing claims remained at a 3-year high.

 

The US dollar index and yields:

Despite the pickup in inflation, the US yields eased on month-end buying. However, the US Dollar Index closed with a gain of 0.07 per cent at 106.14; thus, the Index has recovered slightly from the huge selloff coming on the heels of Trump announcing Scott Bessent as the incoming Treasury Secretary.

 

ETF and inventory:

Total known global silver ETF holdings stood at 734.358 Moz as on November 27, slightly higher than 735.285 Moz seen at the end of the prior week. COMEX silver inventory stood at 307.976 MOz, nearly a 2-year high level.

 

India’s ETF trend:

As per ICRA Analytics, India’s Assets Under Management (AUM) witnessed a four-fold growth in the past year, touching Rs 12,331 crore in October 2024, up from Rs 2,844.76 crore in October last year, on investors rising investor interest in silver as a hedge against domestic inflationary pressures and geopolitical uncertainties.

 

China's silver imports:

China imported 244.382 million grams (Mgrams) of silver in October, down from 347.995 Mgrams in September, but up from 339.185 Mgrams in October 2023.

 

Outlook:

As industrial commodities remain under pressure due to lack of China’s fiscal stimulus and concerns over trade friction, silver will rely on geopolitical development for its upward traction. 

 

Silver is lagging gold on account of the former’s industrial attributes. Nonetheless, buying the dips is advisable on geopolitical risks. 

 

The recent turn of events in the Russia-Ukraine war reflects the volatile and disconcerting situation.

 

Support is at $29.64 (MCX March silver contract Rs 88,200)/$29.20 (Rs 87,000). Resistance is at $30.80 (Rs 91,700)/$31.30 (Rs 93,100). The major resistance is at $31.80 (Rs 94,700). 

 

(This article is by Praveen Singh – Associate VP, Fundamental Currencies and Commodities, Mirae Asset Sharekhan. View expressed are his own.)