Silver futures seen subdued on strong dollar, but weak rupee prevents sharp fall

Earlier in the year, analysts tracking silver futures predicted a declining trend in the underlying. But the rupee's slide against the dollar has prevented a sharp fall in prices.

Nevertheless, silver futures have been largely subdued with an occasional spike. The trend in the near term is likely to be downward, say analysts at domestic brokerages. The white metal which saw record high prices in April last year is not on the buy list this year.

Silver prices have declined in the international market mainly due to dollar strengthening against major currencies and slide in prices of base metals as well as gold

The white metal often tracks price trends in both gold and base metals as it also has industrial uses apart from decorative.

Silver futures had moved up to a record high of Rs 73,600 a kg levels on MCX in April 2011.

Rupee stops fall

“Internationally, the trend for silver is bearish. In India, the rupee is helping keeping prices firm,” said Mr PranavMer, senior analyst, MangalKeshav Commodities.

The rupee has been declining in value to new lows against the dollar. The home unit slipped further to Rs 55.82 per $1 in early trade on Wednesday. As the country's silver requirements are mainly met through imports the fall in rupee against the dollar raises the landed cost of the white metal.

“Ideally, if the rupee was stable silver in India should be below Rs 45,000 a kg,” said Mr Kishore Narne, Head – Currency and Commodity Research, AnandRathi Commodities.

No buy calls

Brokerages are advising their clients to refrain from taking long positions (buy positions) as the overall trend is weak.

“Silver prices have been quite volatile. They broke a crucial support of Rs 52,800 a kg but then recovered sharply and now again moving down,” said Mr Mer.

Fundamentals continue to remain negative for the white metal.Base metals have been heading downwards mainly due to dollar's strength and sluggish demand for industrial metals in the backdrop of continuing worries on the euro zone debt crisis.

Also, gold prices have not been able to sustain their uptrend. The yellow metal is a major price determinant for silver.

“Gold saw a relief rally and prices moved up but it is unable to break above $1,600 an ounce,” Mr Mer said.

His brokerage has been asking clients to look for selling opportunity in every rise in silver prices.

Technical trend

Silver is unlikely to see levels its saw last year. At best it can come up to Rs 63,000 or Rs 64,000. Silver futures will have to close above Rs 56,500 a kg to see a sustained rise, said Mr Mer. The July contract has two crucial support levels – first at Rs 52,800 and the second at Rs 51,200 before its expiry. AnandRathi Commodities expects silver prices to move down further.

“By the end of the year, silver futures should be at around Rs 42,000-43,000 a kg,” said Mr Narne.

At mid-day, silver July on MCX was down 1 per cent at Rs 53,824 a kg.

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