Silver Recovers on US-China Trade Deal Hopes and Fed Rate Cut, Despite Mixed Signals

Silver prices have shown a notable recovery, trading up by 2.75% for spot silver and 1.95% for the MCX December contract on October 30, following three consecutive days of gains. This comes after a significant slump of 16.37% from its record high on October 17, falling to $45.55 by October 28. The recovery is partly attributed to a trade agreement reached between the US and China on October 29, which includes tariff reductions and a one-year suspension of reciprocal levies. However, this truce is largely viewed as a short-term respite, with fundamental trade issues remaining unresolved.

Adding to market dynamics, the US Federal Reserve cut its Fed Fund rate by 25 basis points to a 3.75%-4% range. However, the accompanying commentary from Fed Chair Powell, warning about future rate cuts being data-dependent due to the US government shutdown, was interpreted as hawkish, leading to a rise in the US Dollar Index and yields. Other central banks, including the Bank of Canada and the European Central Bank, also made policy decisions, with the ECB leaving rates unchanged.

Despite elevated US dollar and yields, silver is holding its ground, which is seen as a positive sign. However, declining silver ETF holdings and a fall in the silver lease rate from London suggest easing tightness in the market, which could dampen bullish sentiment. The outlook suggests a potential for further bounce towards $50-$51 driven by bargain buying and the Fed rate cut, but near-term volatility is expected due to underlying economic pressures. Support levels are identified at $47.66, $45.22, and $44, with resistance at $49, $50.02, and $51.07.

Impact: This news impacts commodity markets globally and indirectly influences the Indian stock market through commodity prices and currency exchange rates. The US-China trade deal and Federal Reserve policy are significant global economic events with broad ripple effects.

Definitions: Fed Fund rate: The target interest rate set by the US Federal Reserve for overnight lending between banks. FOMC: The Federal Open Market Committee, the primary monetary policymaking body of the Federal Reserve. Asset runoff: The process by which a central bank shrinks its balance sheet by allowing its assets to mature without reinvesting the proceeds. Hawkish: Refers to a monetary policy stance favoring higher interest rates to combat inflation, even if it might slow economic growth. US Dollar Index (DXY): A measure of the U.S. dollar's value against a basket of six major foreign currencies. COMEX: The Commodity Exchange Inc., a major US-based futures exchange where commodities like silver are traded. ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding assets like silver, designed to track its price. Silver lease rate: The cost of borrowing silver in the market. A low rate suggests ample supply, while a high rate indicates tightness.