Silver price today: 'Rally after US Fed's rate cut may be short-lived'

Silver price today: The metal may briefly dip to $29.65 level (Rs 88,500) in the near-term, though downside may also be limited as China's stimulus hopes will support the metal

Silver: May rally briefly on the Fed rate cut

 

Performance:

 

Spot silver was changing hands at $30.48, down around 0.15% on the day.

 

The metal has traded between $30.15 and $30.61 during the day, as it recovered its losses on a slight dip in the US Dollar and yields due to disappointing US industrial production data.

 

The MCX March Silver contract, at Rs 90,919, is down 0.29 per cent.

 

US Dollar and yields:

 

The US Dollar and the yields have been gaining upward traction, though slightly lower currently on the US industrial production data, on a stellar S&P US services PMI report released on December 16 that showed that the S&P services PMI (December preliminary) came in at 58.5 versus the forecast of 55.80.

 

 

The US Dollar Index rose past 107 before slipping to 106.77, down 0.10 per cent on the day as the US industrial production data disappointed. The ten-year US yields at 4.38 per cent, are down 0.32 per cent after rising to 4.438 per cent -- the highest since November 20. Similarly, 2-year yields at 4.24 per cent, are down around 0.2 per cent on the day after rising to 4.287 per cent, the highest since November 26.

 

Data roundup:

 

US retail sales advance (November) came in at 0.7 per cent M-o-M as against the forecast of 0.6 per cent as the prior data was revised higher from 0.4 per cent to 0.5 per cent. Retail sales, ex-auto and gas, at 0.2 per cent trailed the forecast of 0.4 per cent, though the prior data was revised higher from 0.1 per cent to 0.2 per cent. Retail sales control group at 0.4 per cent matched the forecast. 

 

However, industrial production (November) at -0.1 per cent underwhelmed as it lagged the 0.3 per cent forecast.

 

Germany's data were mixed as IFO expectations (December) came in at 84.4 (forecast 87. per cent), whereas ZEW Survey expectations (December) at 15.70 topped the estimate of 6.90. The Eurozone's ZEW survey expectations improved from 12.50 in November to 17 in December.

 

The UK's employment report was strong as average weekly earnings 3M/Y-o-Y (October) at 5.2 per cent beat the estimate of 4.6 per cent as the prior data was revised slightly higher. Employment change 3m/3m rose to 173K, compared to the expectation of 5K as previous data was revised higher. NAHB housing market index at 46 lagged the estimate of 47.

 

Upcoming data and event:

 

Today's US data include housing starts (November). Traders will also monitor the Euro-zone's CPI data (November final).

 

FOMC rate decision: The US Federal is expected to slash benchmark Fed fund rate by 25 bps to 4.25-4.50 per cent range. However, the US Fed may hint at a temporary pause after this rate cut as the key US data like nonfarm payroll, GDP growth rate, ISM services, etc reflect strength in the US economy amid sticky inflation as reflected in the November CPI and PPI readings. Thus, the pause is expected to be a hawkish one; thus, rally in the metal coming on rate cut might be capped.

 

ETF and COMEX inventory:

 

Total known global ETF holdings declined for the fourth straight day to 711.29MOz, the lowest since September 20, as on December 16. COMEX Silver inventory stood at 307.725 MOz, around 2-year low, as on December 16.

 

Silver Outlook:

 

Silver is expected to consolidate ahead of the US Fed's monetary policy decision due tonight. A short covering bounce is quite possible before the decision. ETF trend is a worrisome factor for bulls in the short-term. As the US economy is growing at an above-trend pace amid sticky inflation, the Fed is likely to go for a temporary hawkish pause in tonight's monetary policy decision. An inflation-hedge rally is possible, but it is likely to be short-lived unless the geopolitical situation worsens. China’s Central Economic Work Conference ending without specific details on fiscal stimulus and rate cuts is expected to keep the metal under pressure. Thus, the Fed-induced rally may not last long.

 

The metal may briefly dip to $29.65 level (Rs 88,500) in the near-term, though downside may also be limited as China's stimulus hopes will support the metal. Resistance is at $31 (Rs 92,400)/$31.30 (Rs 93,400).  =============  Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.