Silver Trading Strategy: 50 bps cut could help silver clear Rs 90,400 hurdle | commodities

Control group retail sales, the more accurate gauge to measure consumer spending, matched the 0.30% forecast, while July’s data was revised higher from 0.30% to 0.40 %. Industrial production rose 0.90 percent in August (0.20 percent forecast), as the NAHB Housing Market Index (September) was in line with the 41 forecast.

US dollar and yields: Up on encouraging US data

US yields were slightly firmer on an encouraging set of US data. Ten-year US yields were seen at 3.65%, up about 0.75% on the day, while two-year yields at 3.59% were up more than 1%.

The US dollar index at 100.99 was up 0.22% on the day.

Futures: US Federal Reserve policy decision in focus

The US FOMC’s monetary policy decision to be announced tonight is the most important decision for the markets as the Central Bank is set to begin its easing cycle. Although economists are predicting a 25 bps hike, markets are also discounting the possibility of a 50 bps rate cut. As the Wall Street Journal reported a few days ago, members of the US Fed are debating whether to opt for a 25 or 50 basis points per second cut. This uncertainty is somewhat unusual because the Fed always believes in clear and well-telegraphed decisions in its communications.

It should be noted that the probability of a 50 bps cut was not affected by the retail sales and industrial production data as it is around 63%.

In addition to the FOMC’s monetary policy decision, markets will also be looking at US housing starts (August).

ETF and COMEX inventory: At high levels

Total known global silver ETF holdings stood at 719,781 Moz, the highest since April 2024.

COMEX silver inventory was 305.926 MOz, hovering around a nearly 2-year high.

Outlook: Silver has many supporting factors to push it higher as the Fed begins to cut rates. Geopolitical tensions, a 20% deficit market, the transition to green energy, consumption in AI data stations, new applications in medical fields, etc. However, the near-term outlook depends on the pace of Fed rate cuts as the Chinese economy continues to struggle.

With some element of uncertainty going into the FOMC, the metal is likely to be somewhat volatile. While a 50 bps rate cut will help the metal clear the tough hurdle at $31.10 (Rs 90,400) to challenge the resistances at $31.55 (Rs 91,700) and $32.52 (Rs 94,500) finally, a 25bps rate cut with a FO MC statement could be balanced. drop the metal to $29 (Rs 84,300). Thus, it is advisable to manage risks with options and light positioning. Overall, however, the outlook remains optimistic.

(Disclaimer: Praveen Singh is Associate Vice President of Currencies and Core Commodities at Sharekhan by BNP Paribas. Opinions expressed are his own.)

First publication: September 18, 2024 | 10:58 AM IST