 "Silver")
Silver – sharply up as the central banks cut rates
Spot silver surged sharply higher on June 6 as leading central bankers slashed their benchmark rates. The Bank of Canada cut its rate by 25 bps on Wednesday, which was followed by the European Central Bank that cut key deposit rate by 25 bps to 3.75%. Although the European Central Bank has not given a clear forward guidance for its monetary policy, the Bank will adopt a data dependent approach for its future policy decisions.
Spot gold was trading with a gain of 4.33% at $31.31 at the time of the MCX closing. The MCX July silver was at Rs 93,832 (LTP), up 3.74% on the day.
Data and event round up:
US ISM services (May), released on Wednesday, came in at 53.80 Vs the forecast of 51. Although the ISM services data was better than expected and it showed that the US services sector only briefly slipped into contraction zone in April, the ADP data, precursor to the US nonfarm payroll report to be released Friday, came in at 152K; thus, fell short of forecast of 175K.
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US data released on Thursday showed that the initial jobless claims in the week ending June 1 jumped to 229K from 221k, whereas unit Labor cost (first quarter final estimate) at 4% was well below the estimate of 4.90% due to reduced hours and weaker output.
The European Central Bank cut the key deposit rate by 25 bps to 3.75% after holding it at 4% for nine months. The ECB assessed that the inflation outlook has improved markedly, and inflation is likely to hover around current levels for the remaining part of the year; however, the central bank will adopt a meeting-by-meeting approach for the future policy decisions. The ECB upgraded its inflation forecasts to 2.2% in 2025, up from 2% before. In addition, the Bank lifted this year's economic expansion forecast to 0.90% from 0.60%.
Yields and the Dollar Index:
The US Dollar Index was at 104.17, down 0.17% on the day, as the US ten-year yields at 4.28% were largely steady.
Geopolitical watch:
In a show of strength, Russian warships are heading towards Caribbean as Biden has authorized Ukrainian strikes inside Russia with the US weapons.
ETF and inventory:
Total known global silver ETF holdings rose for the second straight day to 80.934Moz, which is higher than the 80.811 Moz seen at the end of the prior week ending May 31.
COMEX silver inventory stood at 297.286 Moz as on June 6, which was slightly lower than the prior week's level of 297.589 Moz.
Outlook:
The metal is expected to consolidate its gains ahead of the US nonfarm payroll report due Friday. Traders are expected to buy the dips.
A soft job report will help the metal challenge the cycle high level of $32.52.
Support is at $30.95 (Rs 92,700)/30.0 (Rs 90,000). Resistance is at $32.52 (Rs 97,500). Recovery in the industrial commodities is also positive for the silver prices.
Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are his own.
