Silver May Witness Prices Drops Amid Profit Booking, Support At rs. 4000
CommodityOnline | May 06, 2014 08:19AM ET
Silver prices dropped amid profit booking in the second consecutive month as improvement in U.S. data led to speculations that the Fed may raise interest rates earlier than anticipated in the future. Data released during the second half of the month signaled that U.S. index of leading indicators climbed the most in four months. The Fed's Beige Book released last month illustrated that growth "had picked up" after "lingering winter weather hampered business activity, but the impact was less severe than earlier this year." Fed Chair Janet Yellen also said that the central bank would be delivering policy stimulus for some time to come, where the timing of raising interest rates would depend on the progress in the labor market and inflation.
Meanwhile, the safe haven appeal of the bullion was further dented as the outlook of economic recovery in the US improved. On the other hand, escalating tensions in Ukraine could not provide safe haven demand on the metal. With the improvement seen in U.S. Data, bets are increasing that the Fed would continue with its stimulus reduction and may raise interest rates earlier than anticipated. Hence, bullion may face further downside pressure as it lost its merit as an inflation hedge. U.S. retail sales figures released during the month tracking a series of upbeat data, provided hopes that recovery in the world's biggest economy is strengthening. Retail sales posted their largest gain in 1-1/2 years in March with a 1.1 percent advance from a revised of 0.7 percent.
Precious metals however showed some upside during the month as the escalating geopolitical tension in Ukraine enhanced safety demand on bullion. Meanwhile, tensions between the West and Russia over ongoing unrest in Ukraine remained high after the United States imposed new sanctions on seven powerful Russians who are close allies of Russian President Vladimir Putin and also sanctioned 17 Russian companies in reprisal for Moscow`s actions in Ukraine.
While markets during the last week of the month discounted the news that the Fed would continue their bond purchases withdrawal at the same pace of $10 billion a month, the timing of raising the borrowing cost was not clear yet.Silver prices plunged for thesecond time in a row on monthly basis, losing almost 3.5% at the domestic exchange i.e. MCX and lost almost 3% in the international markets. On weekly and monthly charts prices are still holding a very strong support of Rs. 40000/kg which is also acting as a strong psychological level, counter has never witnessed a monthly close below the level since past more than 3 years. Once breaches and would sustain below then we might expect selling pressure to persist in the coming months or so and bears would take control over the bulls for near future. Rs. 40000/kg would be the first hurdle downside faced by the white metal below which the counter might slip even further until the level of Rs. 38500-38000/kg. Momentum indicators i.e. MACD and RSI are still in favor of more downside from present levels where a weekly close below mentioned psychological level could confirm more weakness into the system.
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