Silver Trading Strategy Today: Buy Suggested on Dips; $30 Resistance

4 minutes of reading Last update: Sep 11, 2024 | 10:06 AM IST

Silver: Steady ahead of US CPI data

Efficiency

Spot silver was steady at around $28.30 at the close of MCX. The MCX silver contract for December at Rs 73,700 was up around 0.07 per cent. Silver erased most of its intraday losses as US bond yields fell ahead of the UP CPI inflation data due tomorrow.

US banks have raised alarm about their earnings, which is somewhat positive for the metal. JP Morgan, the largest US bank, said that expectations for net interest income next year are quite high. Goldman Sachs Group INC CEO David Solomon said the company’s third-quarter trading revenue could fall by 10 percent. However, as expected, there is some relief on the regulatory front for US banks, with US regulators reportedly cutting the proposed capital raise by half.

Broader markets were on a softer note with Brent crude falling below $70.

Data Summary

China’s trade balance data released on Tuesday showed that while exports in August rose 8.7% year-on-year (a forecast of 6.60%), imports rose just 0.50% year-on-year compared with a forecast of 2.50%. China’s data released earlier showed core CPI inflation data in August fell to its slowest pace in more than three years, while PPI fell 1.80% year-on-year compared with an estimate of -1.50%. PPI data remained mired in deflation for the 22nd consecutive month in August.

UK employment data was largely mixed in July as average weekly earnings three-month/year-on-year were 4%, below the 4.10% forecast. While the three-month change in employment of 265,000 jobs beat the forecast of 123,000, the monthly change in payroll workers was -59,000 compared with a forecast of +25,000.

US Earnings and Dollar Index

The value of US bonds continues to rise on concerns about the health of the US economy, and interest rate cuts are becoming more severe.

Ten-year U.S. Treasury yields fell to 3.642%, a new cycle low; two-year yields at 3.592% also hit a new low. The U.S. Treasury yield curve is no longer inverted as the Fed looks set to cut benchmark rates amid a weakening labor market.

The US dollar index, despite a sharp drop in yields, rose by 0.10 percent and stood at 101.65.

Incoming data

Market participants are awaiting the key US CPI (August) data due tomorrow to gauge the pace of possible Fed rate cuts. Year-on-year CPI is expected to show a sharp decline to 2.5% from 2.9% in July.

Silver ETF Assets

Total known global holdings of silver ETFs rose to 717,083 MOz, a near two-week high, on September 9. COMEX silver holdings of 306,575 MOz are the highest in almost two years and do not yet show any long-term downtrend.

Perspectives

The gold-silver ratio remains high at 88.88, well above the cycle low of around 82, as industrial commodities have come under pressure. Gold has been outperforming silver on concerns about key economies in China and the US. The white metal has been moving more in line with copper than gold recently. While silver is expected to outperform industrial commodities, its upside could be limited in the short term. Nevertheless, interest rate cuts are expected to support the metal.

Support for the metal is at $27.22/26.70. Resistance is at $29.18/30. It could be tested at $30 if US CPI readings turn out to be muted.

Buying on bearish times is the preferred strategy, although weakness in industrial commodities is a concern. Hence, strict stop-loss rules are necessary.

(Disclaimer: Praveen Singh is Vice President, Core Currencies & Commodities at Sharekhan by BNP Paribas. The views expressed are his own.)

First published: Sep 11, 2024 | 10:06 AM IST