Silver falls most in 11 weeks ahead of Fed minutes. Should you buy white metal now?

Domestic precious metal prices dropped on Wednesday tracking volatility in global markets ahead of the release of minutes of the US central bank’s last policy meeting. Profit booking was witnessed across commodities ahead of the key event, which may offer more clarity on interest rates in major economies, say analysts.

The white metal suffered its worst single-day loss since March 4, while gold seesawed between gains and losses with a negative bias.

On MCX, silver futures for delivery on July 5 quoted down by Rs 1,806 or 2.47 per cent at Rs 71,390 per kilogram at the last count, having slumped as much as 2.81 per cent earlier in the day to Rs 71,141 per kilogram — their worst intraday loss since March 4.

MCX gold futures (June 4) traded Rs 337 or 0.70 per cent lower at Rs 47,970 per 10 grams in early hours of the evening session — which is conducted from 5:00 pm to 11:30 pm, after gyrating within a less than Rs 500 range, between Rs 47,950 and Rs 48,428, during the morning session.

Spot silver became cheaper by Rs 1,417 to settle at Rs 71,815 per kilogram in the national capital on Wednesday. Spot gold also declined to finish at Rs 47,853 per 10 grams for the day, down by Rs 97.

In the international market, gold and silver benchmarks retreated from multi-month peaks as analysts keenly awaited the Fed minutes for more clarity on interest rates in the world’s largest economy in the months to come. The silver benchmark was last seen quoting 1.55 per cent lower at $27.75 per ounce while gold was down 0.25 per cent at $1,864.68 per ounce.

The minutes of the US central bank’s April 27-28 money policy meeting are slated for a release at 1800 GMT (11:30 pm in India).

“The market is more concerned about inflation and Fed’s forward guidance on monetary policy,” Manoj Kumar Jain, Director-Head of Commodity Research at Prithvi Finmart, told ETMarkets.

Last week, data showed annual consumer inflation in the US quickened to 4.2 per cent in April — its fastest pace in more than a decade. Many analysts fear inflationary pressures may force Fed to hike key rates sooner than anticipated earlier. Though Federal Reserve officials have promised to keep interest rates low for some time.

Traditionally, bullion is viewed as a hedge against inflation. While the gold benchmark is down 1.81 per cent so far this year, silver is up 5.21 per cent.

“Few Fed officials have shown concerns regarding rising inflation although others have pledged to keep interest rates low until the economy reaches full employment, and have repeatedly maintained they expect any rise in inflation to be short-lived,” said Navneet Damani, VP-Commodities Research, Motilal Oswal Financial Services.

However, a weak greenback overseas provided some support with the dollar index holding close to a near three-month trough, Weakness in the US currency makes gold more attractive for holders of other currencies. The yield on the 10-year benchmark US bond traded steady in a range.

Back home, analysts expect some volatility in precious metals in the near term on currency fluctuations.

The rupee depreciated by 13 paise to settle at 73.18 against the greenback amid a slump on Dalal Street, ending a three-day winning run. It had risen 0.68 per cent in the past three sessions.

Domestic equity benchmarks also snapped a three-day rising spree. The S&P BSE Sensex index shed 290.69 points or 0.58 per cent to end at 49,902.64 and the broader NSE Nifty 50 benchmark lost 77.95 points or 0.52 per cent to 15,030.15.

Typically, gains in equities dent the safe-haven appeal of precious metals.

Where are the precious metals headed?

Damani expects Comex spot gold to move within a range of $1,855-1,900, and MCX gold between Rs 48,050 and Rs 48,720 per 10 grams in the near term.

For silver, he sees strong support at $25.80 per ounce on Comex and Rs 68,450-68,800 on MCX. Buying in the range of Rs 69,850-70,100 is advised for a target price of Rs 73,500, followed by Rs 77,500, with a stop loss at Rs 68,450, he added.

Jain sees support for MCX silver at Rs 72,700-72,200 and resistance at Rs 73,800-74,200 per kg. For gold, support is pegged at Rs 48,055-47,920 and resistance at Rs 48,550-48,700, he said.

He suggests buying silver around Rs 72,700 for a target of Rs 74,200 with a stop loss at Rs 71,900.