On Thursday, silver prices rallied to a nearly three-week high, driven by expectations of U.S. Federal Reserve rate cuts and strength in industrial commodities. Spot silver surged from its daily low of $28.53, reaching $29.82, up around 4% on the day. The MCX Silver December contract also saw a rise, closing at ₹87,274, up nearly 3.33%.
The rally in silver came as the U.S. jobless claims data slightly exceeded expectations, and the Producer Price Index (PPI) data for July was revised lower. These factors, combined with the European Central Bank (ECB) cutting rates by 25 basis points (bps), fueled market sentiment that the U.S. Fed could soon follow with rate cuts, supporting the bullish move in silver.
Key Market Data Impacting Silver Prices
- U.S. Jobless Claims: The U.S. initial jobless claims rose to 230,000, slightly above the forecast of 226,000, while the previous data was revised up by 1,000.
- Producer Price Index (PPI): The PPI for August rose 0.2% month-on-month, surpassing the forecast of 0.1%, and core PPI increased 0.3% month-on-month, above the 0.2% estimate. These revisions, particularly the July PPI being revised lower, increased the likelihood of Fed rate cuts, which in turn lifted silver prices.
- European Central Bank (ECB) Rate Cut: The ECB reduced its deposit facility rate by 0.25% to 3.50% as inflation remains steady, but growth risks persist in the Eurozone. This dovish outcome heightened the probability of the U.S. Fed following suit with rate cuts, which supported silver’s rise.
ETF Holdings and COMEX Inventory
- Silver ETF Holdings: Total known global silver ETF holdings reached 718.663 million ounces as of September 11, marking a nearly three-week high, reflecting growing investor demand for silver.
- COMEX Silver Inventory: COMEX silver inventory stood at 305.952 million ounces as of September 11.
Upcoming U.S. Economic Data
Investors will be watching key U.S. economic data on Friday, including:
- Import and Export Price Indices (August)
- University of Michigan Sentiment (September preliminary)
- University of Michigan Inflation Expectations
These data points, along with the upcoming Federal Open Market Committee (FOMC) meeting on September 18, will be critical for silver prices. The Fed is widely expected to begin cutting interest rates, with markets forecasting a potential reduction of over 100 bps by year-end, as the central bank shifts focus from inflation to employment concerns.
U.S. Dollar and Yields
- U.S. Treasury Yields: The 10-year U.S. Treasury yield climbed to 3.69%, up more than 1% on the day, while the 2-year yield also rose to 3.69%, up 1.35%. Initially, yields dipped on U.S. data but rebounded later.
- U.S. Dollar Index: The U.S. Dollar Index was down 0.10%, trading at 101.5, contributing to silver’s gains as a weaker dollar often boosts precious metals prices.
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Outlook for Silver
The prime mover for the commodities markets is the September 18 FOMC meeting, where the U.S. Federal Reserve is expected to signal the beginning of rate cuts. While recent CPI and PPI readings do not suggest the need for aggressive rate cuts, the weakening job market may prompt the Fed to lower rates by over 100 bps this year.
Given the bullish momentum and rate cut expectations, buying the dips remains the recommended strategy for silver traders in the short term.
Key Support and Resistance Levels
- Resistance: Silver faces resistance at $30.11 (₹88,000) and $31.00 (₹90,500). If silver breaks above these levels, it could test the previous high of $32.52.
- Support: On the downside, support is seen at $29.20 (₹85,400) and $29.00 (₹84,800).
Trading Strategy
- Buying the Dips: Traders should consider buying silver when prices pull back toward the $29.20-$29.00 (₹85,400-₹84,800) support zone. This strategy is recommended as the market sentiment is currently bullish due to expectations of dovish policy from the Fed.
- Profit-Taking at Resistance: If silver prices approach or breach the $30.11 (₹88,000) resistance level, traders may consider booking profits, particularly ahead of the FOMC meeting.
Silver has gained significant upward momentum, driven by expectations of U.S. Fed rate cuts and strength in industrial commodities. As the Fed’s September 18 meeting approaches, silver is expected to remain bullish. Traders are advised to buy the dips and monitor key support and resistance levels closely, with ₹85,400 as the critical support and ₹88,000 as the near-term resistance. Caution is warranted as market volatility may increase leading up to the Fed’s decision.
