Silver trade: Buying on dips still favourable, may continue to rise

Slightly softer than expected inflation data from University of Michigan, which was released Friday, continued to aid in commodities recovery, though US Conference Board Consumer confidence data (April), released Tuesday, has capped the gains for now. The Fed’s Kashkari’s hawkish remarks also led to a retreat in commodities prices from their respective day’s high on Tuesday.

Spot silver was trading at $31.97, up 0.47 per cent on the day, at the time of the MCX closing. The July contract at Rs 95,535 was up 0.77 per cent on the day.   

Geopolitical watch:

Geopolitical tensions are resurfacing once again with the Middle East situation in focus. The Israeli army has claimed that it has reached the centre of Rafah city. An Egyptian soldier got killed in a clash with Israeli troops at a Gaza border crossing on Monday. In addition, an Israeli airstrike Sunday at a tent camp northwest of Gaza, killed an estimated 45 Palestinians. Benjamin Netanyahu called the airstrike Sunday a “tragic mistake” amid growing international condemnation.

ETF holdings and COMEX inventory:

Total known global silver ETF holdings fell to 692.457 Moz on May 27 from the level of 695.893 Moz seen at the end of the previous week. 

COMEX silver inventory edged up to 298.515 Moz from 298.001 Moz at the end of the last week.

Data round up:

US data released Tuesday were mixed. FHFA House Price Index (March) rose 0.10 per cent m-o-m Vs the expectation of 0.50 per cent, whereas Conference Board Consumer Confidence recorded its first rise in four months and was noted at 102 Versus the expectation of 96, which, in turn, coupled with hawkish Fedspeak, pushed up the US yields.   

Yields and Dollar:

The ten-year US yields at 4.54 per cent were up 1.50 per cent at the time of the MCX closing, whereas the US Dollar Index, despite higher yields, was flat at 104.57.

Fedspeak: slightly hawkish

Federal Reserve Bank of Minneapolis President Neel Kashkari said policymakers should take their time in monitoring whether inflation is slowing enough to warrant interest-rate cuts. He warned that a rate hike was not entirely ruled out.

Upcoming US data

The major US data to be released this week include Fed Beige book, US GDP (Q1 second estimate), goods trade balance (April advance), weekly jobless claims, pending home sales (April), personal income (April), personal spending (April) and PCE deflator inflation data (April). Unless we see a surprise in the second estimate of the US GDP data, the PCE deflator inflation data, which would be released Friday, would be the most crucial data for the white metal. 

Outlook:

Silver has seen strong buying support around $30. The metal may continue to trade with a positive bias if it is above $28.50. Weaker than expected US GDP and inflation data will help the metal take out the strong resistance at $32.52 (cycle high)/ Rs (MCX July contract). Support is seen at $31 (MCX July contract price Rs 92,500)/ $30 (Rs 89,600). Buying into the dips around $31 is preferred unless the US ten-year yields move further up towards 4.60 per cent.

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