Silver sharply lower as commodities tumble across-the-board
Silver Performance
Silver prices crashed to their lowest level since September 19 on Tuesday, as commodities tumbled on multitude of bearish developments.
The sell-off in commodities, which began in the Asian session soon after China’s NDRC’s announcements (National Development and Reform Commission, China’s economic planning agency), gathered pace in the US session.
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NDRC’s briefings failed to provide details of the much-awaited additional fiscal stimulus. As per NDRC’s announcements, the Chinese authorities will bring forward to this year $14 billon in central government from 2025 budget and would add another $14 billion in spending on key strategic areas this year as they would speed up spending while largely retaining plans to boost investment. In addition, the country would continue to issue ultra-long sovereign bonds next year to support project spending.
Investors, hoping for additional policy measures were hugely disappointed. Nearly all the metal and energy counters tumbled on concerns about Beijing’s resolve to shore up the nation’s ailing real estate sector and the struggling economy.
China’s conservative fiscal stance may reflect concerns about debt. Still, announcements on more stimulus measures are expected given the fact that the Chinese economy is caught up in a deflationary spiral and the officials at the last month’s Politburo meeting sounded quite supportive.
Apart from disappointments on China’s stimulus front, impacts of the robust US nonfarm payroll released on Friday continue to weigh on commodities and bond markets, keeping the US yields elevated, as 50-bps rate cut probability has vanished.
Contained geopolitical tensions also weighed on the metal as Israel’s retaliation against Iran is awaited.
Spot silver was trading at $30.35, down nearly 4 per cent on the day. The MCX December contract at Rs 88,710 was down 3.95 per cent.
US Dollar and yields:
The US Dollar Index, which just a few days back was on defensive at the crucial support level of 100, has soared to 102.57. The ten-year US yields at 4.03 per cent were up by 1-bps, whereas the two-year yields at 3.96 per cent were down nearly 1 per cent.
ETF holdings:
Total known silver ETF holdings, as on October 7, stood at 724.495 Moz, the highest weekly level since April 5. COMEX silver inventory level was noted to be 305.873 Moz.
Geopolitical watch:
Overall, the situation is somewhat contained as Israel’s response is awaited, though battles continue to rage in the Middle East. Israel has expanded its ground operation in Lebanon and Hamas fired rockets on Israel. Hezbollah is said to be backing ceasefire attempts, though Israel has warned that Lebanon faces destruction like ‘Gaza’. Israel’s defence minister will travel to Washington as Israel warned that its retaliation against Iran will be significant.
Outlook:
In absence of any major escalations in geopolitical tensions and lack of details about China’s stimulus, the metal may trade with a bearish bias, though it is looking oversold at the current level.
The US CPI data (September) will be out today; however, the US nonfarm payroll report has rendered the inflation data largely redundant unless the readings turn out to be uncomfortably higher. US yields are likely to remain firm in the near-term, which would be supportive for the US Dollar.
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Disclaimer: Praveen Singh is associate VP of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.
First Published: Oct 09 2024 | 9:22 AM IST
