Silver May Trade Medium Term Supporting At Downside Below Rs42000/kg

MUMBAI: Silver prices tumbled more than 7.5 percent at MCX and close to 7% at COMEX last month after the U.S. central bank hinted that it may raise interest rates in the first half of next year. Fed decided at its two-day meeting last month to slash bond pur-chases by another $10 billion to $55 billion, showing solem-nity that stimulus will be cut in its further meetings after which silver prices plunged to seven months low at MCX. Selling pressure in silver prices was sparked after INR appreciated sharply against the dollar last month. Fed officials said they anticipate a hike in borrowing cost to at least 1 percent at the end of 2015, higher than previously expected. Fed Chairman Janet Yellen said interest rates may rise in six months after the end of the bond purchases withdrawal. The U.S. dollar index rallied sharply after the FOMC statement, which added to the selling pressure in pre-cious metals. As long as the labor market continues to show improvement and infla-tion remains below 2.0% the Federal Reserve has no rea-son to change its current monetary policy, said Fed chair Janet Yellen. Precious metals also plunged last month as global equities surged after Russian Presi-dent Vladimir Putin's latest comments on Crimea lifted appetite for risk.

Data re-leased last month showed that U.S. GDP annualized for the fourth quarter was re-vised up to 2.6 percent from the second reading of 2.4 percent, hurting bullion mar-ket. Though India surren-dered its position as the world's largest gold consum-er to China in 2013, it is not ready to let go of its top posi-tion with regards to silver. Even though gold imports fell substantially last year, those of silver soared to a new high in 2013 as more people in the rural areas of the country switched to white metal. So far silver imports have crossed 1400 tonnes in 2013-14 which is the highest num-ber in past five years on a yearly basis. Official data from the Gujarat State Export Cargo has shown 1425 tonnes of silver were import-ed from April 2013 to Febru-ary 2014, as compared to 458 tonnes during the same corresponding period in 2012-13, recording a growth of 210%. However, in February 2014, imports of silver were down by more than 60% at 24.43 tonnes as compared to 80.86 tonnes of silver imports recorded in February 2013. The drop has been attributed to the recent increase in im-port duty on silver.

Silver prices tumbled more than 7% last month at MCX and more than 6.5% in the international market during the same period, already breached its very strong support of Rs 43000/kg at MCX last month, along with that prices faced a very strong resistance on the higher side at $22/oz last month at COMEX which is provided by a declining resistance trend line on weekly and monthly charts. If we look at the broader picture, prices are still trading in a declining but broad channel with constant lower tops and lower bottoms on the charts. Medium term indicators are also supporting downside movement for com-ing few weeks, wherein a close below Rs42000/kg would imply that bears might remain intact in short to medium term till the next target of Rs39500-38800/kg is met, whereas Parabolic SAR is also supporting the same view. At COMEX too, prices are expected to find strong support at $18.80-19/oz.