Silver shed to one year low on strong US dollar, firm equities, hopes of stimulus tapering

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The precious white metal, silver, drifted below one-year lows on easing safe-haven demand. A sharp rise in the US dollar, firm global equities, and the Central Bank’s move on tapering of fiscal stimulus programs pondered the sentiment. 

The benchmark London spot prices dipped to over a one-year low of $21.60 an ounce this week. It had a firm start during the year, surging prices towards $30 an ounce in the first quarter but lost the momentum gradually. In the domestic futures market, prices have corrected more than 21 percent so far from their highest point of Rs 74,426 recorded in February this year. 

Both gold and silver are considered safe during periods of economic and political distrusts. Easing fears of the pandemic and a recovery in global industrial and economic activities lead to a rebound in the global economy. This has induced investors to shift their focus from safe assets to risky investments like equities.  

Major global equity indices gained considerably during the year. U.S Dow Jones rallied 12 percent, while the European indices like German Dax and France CAC advanced 12 percent and 18 percent respectively. In Asia, the Indian Sensex hovering at all-time highs by growing more than 24 percent so far this year. Meanwhile, the equity gauge of the world’s second-largest economy, China, recorded a modest improvement of 2 percent till this year. 

Central Bank’s move on tapering of the fiscal stimulus also dented the safe-haven status of silver. Earlier, as policymakers scramble to support the economic blow due to pandemic, central banks across the world have initiated several fiscal stimulus programs that earlier lifted the posture of bullion. 

In the latest policy meeting, the European Central Bank (ECB) has announced its first small step towards unwinding the emergency aid that has been shoring up the Eurozone economy during the pandemic period. Likewise, the US Fed also hinted that though the US job market made clear progress, the central bank was waiting for substantial further progress for tapering stimulus measures. The bank also hinted at a possible rate hike by late next year. 

The US dollar continues to remain firm against its key rivals. The dollar index, which measures the value of the U.S dollar relative to a basket of other foreign currencies climbed to a one-year high this week. Investors embraced the possibility of the US Central Bank to taper some of its stimuli by the end of the year offered support to the currency. A strong dollar adversely affects the outlook of safe commodities like silver.  

Supply-demand outlook too influencing the commodity. As per Silver Institute, global silver demand is projected to rise by 11 percent this year due to a possible rise in industrial demand from China and Europe. The global push on green energy and growing demand in areas like 5G may also offer support to the metal. Meanwhile, global supplies may also register a growth as mining operations recover from the Covid-19 disruptions.  Due to ongoing weak fundamentals, the metal is likely to trade lackluster in the immediate run. However, growth in industrial and investment demand perhaps attracts more investors into the commodity later. On the price front, COMEX rates are likely to range inside $18.50-29 an ounce in near future. In the domestic market, stiff support is placed at Rs 49000 a kg and resistance at Rs 74000 a kg.

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