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Global growth outlook, USD performance, industrial demand will set a short direction for Silver

In MCX, silver prices must break and sustain above Rs 75,000 to trigger major rallies. Key downside turnaround point is seen at Rs 62,000 a kg.

July 31, 2021 / 06:32 PM IST

Hareesh V, Head of Commodity at Geojit Financial Services

Silver prices drifted to a four-month low, shedding more than 8 percent since the start of the year. Weak demand for safe commodities amid signs of rebounding global economic sentiment, firm US greenback and easing fears of Delta variant of Covid-19 reduced the appeal of safe commodities like bullion. Rising US treasury yields too weighed down the precious white metal.

London spot prices broadly traded in a tight range inside $24-30 an ounce throughout this year. It started trading at $26 an ounce and went up to $30 by February, but later corrected. Similar trend was witnessed in domestic market with the key MCX futures prices varied inside Rs 74,000-Rs 62,600 a kg levels since January this year.

The US dollar continues to remain firm against its key rivals after the recovery from multi-month lows. A strong dollar weighed down the sentiment of safe assets like bullion. An increase in US treasury yields too affected the sentiment of the metal. Hopes that the US Federal Reserve will keep their ultra-low rates to support the economy amid the resurgence of new virus cases, pushed the US treasury yields higher.

Traders' attention has now moved to the Federal Open Market Committee (FOMC) for fresh cues. The US Fed had signalled a gradual tapering of the present accommodative policy stance in June, but investors struggled to interpret signals from the mixed comments from the central bank.

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Fed has also failed to give a timeline for tapering of its economic stimulus measures in the latest meeting held this week. The US central bank acknowledged that they discussed the eventual withdrawal of fiscal policy support offered during the pandemic-era, but they are waiting for a significant recovery in the labour market. Measures taken by the central banks to prolong their stimulus will always support the trend of bullion.

Silver prices were extremely volatile last year as the extraordinary events led to severe fluctuations in the metal's supply-demand dynamics. However, the metal gained considerably in 2020 due to the interest created for safe haven assets and a drop in mine production. A notable demand loss was reported from jewellery, silverware and industrial offtake but such shortage offset by a healthy recovery in physical investment.

As per Silver Institute, global silver demand is projected to rise by 11 percent to achieve a six-year high of 1.025 billion ounces in this year. The agency foresees considerable increase in investment demand in 2021 as well.

Meanwhile, the holdings of the iShares Silver Trust ETFs, the world's largest silver backed ETF is set to decline for the second consecutive month in July. The total holdings of the ETFs currently placed at 552.27 million against its record high of 615.899 million in February. As per the US Commodity Futures Trading Commission, hedge funds and money managers reduced their bullish positions and added bearish positions in COMEX silver contract in recent weeks.

Looking ahead, industrial demand from all segments are likely to register gains due to a swift post pandemic industrial growth in China and European countries. Global supplies may also register a growth as mining recovers from Covid-19 disruptions. However, traders are closely watching the global growth outlook, monetary policy, yield outlook and the performance of US dollar to set a medium-term direction of the commodity.

On the price front, COMEX prices may vary inside $30-22 an ounce in the near future and breaking any of the sides would suggest fresh medium-term direction. In MCX, it must break and sustain above Rs 75,000 to trigger major rallies. Key downside turnaround point is seen at Rs 62,000 a kg.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Hareesh V is the Head of Commodity Research at Geojit Financial Services.
first published: Jul 31, 2021 06:32 pm

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