Silver may shine in near term as US rate hike hope fades

Sugandha Sachdev

Silver has been an asset class ,that underwent a massive price correction over the last three years. Most of it has come on the back of pessimism building in the entire bullions space as US economic recovery gathered pace and investors started moving towards risky assets, reducing the investment appeal of safe haven assets; gold and silver. The precious metals have also been facing the brunt of a surging US dollar for quite some time now. The rally in dollar was triggered by the talk of tapering and eventual winding up of QE programme. It turned peculiarly ferocious on the expectations of a rate hike by the US Federal Reserve towards the mid of 2015. The million dollar question at this point in time is, whether the Fed will really go with a rate hike immediately? Well, it looks quite unlikely as of now. The latest US GDP figures have painted a bleak picture of the first quarter, while the dismal trade deficit number has showed the cascading effects of a rising dollar against other currencies on the US economy, hurting corporate earnings. Any hike in interest rates will further make dollar stronger, thereby affecting US economy negatively. This is something Fed would not be comfortable with. A slew of other economic data in the recent days, that have come out below expectations, can refrain the Fed from marking a step away from its easy monetary policy and check the gains in the dollar hereafter. Elsewhere in China, the pace of economic recovery looks stalled and the central bank is likely to come up with some fresh stimulus measures to support the recovery. All other major central banks of the world are also following the path of easy money policy. This would be an important factor supporting the prices of silver . Though silver prices have recovered recently and are off 2014 lows of Rs33491/kg ,having gained by around 5.5 % year till date, but there is still a lot of catching up to do. There has been a wide spread rally in the base metals pack recently and silver is still lagging behind, given the industrial metal demand which is also attached to it, along with its status as a precious metal. As per the latest reports, demand for silver jewellery, which constitutes the largest market for silver is projected to reach 295.9 million ounces in 2015, an increase of around 6.4 percent as compared to 2014. Electronics, which is the second largest market for silver is forecast to reach 225.8 million ounces, up by around 1 percent from 2014 levels. The fabrication demand is also expected to rise by 3.2 percent to 892.7 million ounces in 2015 from 865.3 million ounces in 2014 .On the supply side however, mines are expected to produce 790.5 million ounces in 2015, an increment of around 1.1 percent over 2014. Last but not the least, the recent depreciation in rupee is expected to support the prices of silver domestically. Also, the white metal is likely to perk up from the uncertainty that still surrounds the global economic outlook. Silver prices have been consolidating in the last few weeks, having formed a strong base around Rs33500-34000/kg mark and look poised for a strong recovery. Going forward, the white metal is likely to test the levels of $ 16.70 per ounce and in case of breach above the said level, it can further tread higher towards $ 17.60 an ounce in international markets. Domestically also, prices are likely to move on the higher trajectory and test the levels of Rs.40500-41000/kg in coming days. Investors are advised to enter in to long positions around Rs.37500-37400/kg, while maintaining a stop loss below Rs.36000/kg.