Silver outlook, June 12: Trend weak; US Fed outcome, CPI data next triggers

Silver strategy: Silver is expected to range trade ahead of the US CPI data (May) to be released today. A decisive breach of support at $28.84 may lead to additional sharp decline in the near-term

Silver: Falls as the US Dollar strengthens on risk-off trading

Performance:

Spot silver fell on Tuesday as most of the commodities traded with a bearish tilt on risk aversion emanating from the rise of far-right political parties in European elections. Europe lurching towards far-right political ideology is leading to geopolitical concern.

It is to be noted that precious metals have been under pressure on possibility of delayed rate cuts by the US Federal Reserve. China not buying gold last month; thus, breaking its 18-month long spree of gold buying, has also been adding to the downside pressure.

Spot silver was trading at $29.19, down 1.82 per cent, at the time of the MCX closing. The MCX July Silver contract was at Rs 88,650 (LTP), down 1.50 per cent.

Dollar and yields:

Bonds were mixed as the European bonds fell on political concerns, but the US bonds were up. The ten-year US yields at 4.405 per cent were down 1.48 per cent, while the US Dollar Index at 105.26 was up 0.11 per cent.    

Data and event roundup:

UK job report (April) was disappointing as the United Kingdom's ILO Unemployment rate rose to 4.4 per cent in the three months to April from 4.3 per cent in the previous period. The unemployment rate was worse than the forecast of 4.3 per cent. In addition, the number of people claiming jobless benefits rose by 50.4K in May, was way above the expected rise of 10.2K claims.

After three days of voting across the European Union's 27 member states, exit polls showed that far-right parties were set to win around 150 of the parliament's 720 seats, which means it will be difficult for the mainstream parties to pass laws and achieve their respective goals. The new Parliament will influence and shape Union's direction for the next five years on some of the key issues like climate change, migration, supporting Ukraine, etc.

French President Emmanuel Macron called a snap election to Parliament as his pro-Europe Renaissance seemed to have lost.

ETF holdings and COMEX inventory:

Total known global ETF silver holdings stood at 684.283 Moz as on June 10, which is slightly lower than the level seen in the week ending June 7.

COMEX silver inventory level dipped to 295.372 Moz on June 10, which is the lowest level since May 2. Nonetheless, the present level of inventory is roughly at the highest level in nearly one and a half years.

Outlook:

Silver is expected to range trade ahead of the US CPI data (May) to be released today. The metal may come under further downside pressure as the US inflation readings have been sticky this year. Forecasts do not offer much comfort per se. Apart from the CPI inflation data, tonight's FOMC monetary policy decision will also be crucial for the metal. The Fed might choose to proceed carefully as US nonfarm payroll (May) and ISM services (May) reports reflect that the US economy is doing well.    

 A decisive breach of the key support at $28.84 may lead to additional sharp decline in the near-term. Next support is at $28.50 (Rs 86,500). Resistance is at $30.05 (Rs 91,300) /$30.65 (Rs 93,000). The INR levels correspond to USDINR at Rs 83.60.


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