Silver in uptrend as US yields dip, may hit Rs 85,000-mark on MCX

Silver outlook by Sharekhan: The recovery in Silver prices has been driven largely by increasing probability of rate cuts by the US Federal Reserve

Silver – Rises to six-day high as the US yields dip

Performance:

The white metal rose to $27.52, six-day high, as the US yields continue to drift lower following the disappointing US nonfarm payroll and ISM services data released Friday. The day’s high for MCX June silver contract was Rs 83,333. However, the metal slipped in the US session and was seen nearly 0.65% lower at $27.28 at the time of MCX closing. At Rs 82,831 (LTP), it was down nearly Rs 100 in domestic currency terms. The losses could be attributed to a rebound in the US Dollar due to hawkish Fedspeak.

Geopolitical watch:

Israeli forces have taken control of the Rafah border-crossing in Gaza as possibility of an assault on the city looks real. Although Hamas and Israel continue ceasefire talks, breakthrough is still elusive though as Israel is rejecting Hamas's demand that any pause in fighting will be effectively permanent.

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:

This week is light on data front until Friday, though some volatility could be possible on the Bank of England's monetary policy decision due on May 9.

Inventory:

COMEX Silver inventory edged lower from 295.649 MOz seen on May 3 to 295.645 Moz.

ETF holdings:

Total known global silver ETF holdings fell for the fourth straight day to 692.416 MOz on May 6.

Fedspeak:
Minneapolis Federal Reserve President Neel Kashkari was somewhat hawkish in his speech on Tuesday as he said that inflation moving sideways raises questions about how restrictive policy is. He noted that the housing market is proving more resilient to tight monetary policy than it has been in the past. He even pondered over whether neutral rate has been pushed higher. The US Dollar rose following his comments.

Outlook:

The metal has recovered sharply from its cycle low of $26.01 reached on May 2. Recovery has been driven largely by increasing probability of rate cuts by the US Federal Reserve in the wake of disappointing key data like ISM manufacturing, ISM services and nonfarm payroll. In near-term, it is expected to consolidate its gains and may test resistance at $27.65/$28 (MCX Price Rs 84,000/85,000) in the coming days. Support is at $26.98/$26.30 (MCX Price Rs 81,900/Rs 79,900).

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Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are personal.