Profit booking depressed Dubai Silver (DS) futures on the Dubai Gold and Commodity Exchange (DGCX) yesterday.
Recently, Indian rupee futures (DINR) started moving northwards after eroding value to the rising dollar.
Despite profit booking, technical analysts see bullishness in the metal on the technical charts.
"There is a possibility that strong investor interest prevents prices from declining below $18.75. If this is the case, silver could trade above $18.75 this week. Combined exchange traded fund holdings stood at 470.4 million ounces on May 13, up from 464.4m ounces at the end of last week. Commodity funds and institutional investors meanwhile continue to hold large net long positions," said CPM Group, a commodities market research agency.
Silver futures on Dubai's commodity exchange rose 4.64 per cent during previous week as against 1.94 per cent growth in gold futures. DS futures contract closed the week at $19.280 per ounce.
"Silver prices may decline towards $17.50 this week on profit-taking, if they are not able to break above $20," said CPM Group. "A move below support at $17.50 could push prices towards $16.50. The rapid increase in prices over the past few trading sessions could result in market participants taking profits. There is healthy demand from both investors and fabricators, which should provide support to silver."
Prices are benefitting from the metal's safe haven factor and rising on industrial demand. Investors may use any decline in prices as a buying opportunity.
"Traders, particularly, retail investors, prefer to trade in silver futures as it became volatile," said Pradeep Unni, Senior Financial Analysts with Richcomm Global Services, DMCC. "Gold is expensive when compared to affordable silver, which is less risky too as it's fundamentally demand-driven asset. On the other hand, industrial demand is also high for silver."
Nadeem Khan, Senior Business Development Manager with Century Financial Broker, said: "Silver is trading actively as it offers more gain than gold. Downside pressure is there on silver as it's likely to trade between $18.25 and $18.30 per ounce. The upside resistance level for the metal is seen at $18.80. Open interest position is good, showing high trading interest in the metal."
Dubai Silver futures and Indian rupee futures are resilient to the adverse conditions on the global markets.
DS futures were trading lower at 1,876 cents per ounce on DGCX at the time of writing this article (5:50pm), while INR futures moving upwards at 219.48 cents per Rs100.
"Volumes in INR futures were good because of volatility," said Unni. "Whenever Indian rupee becomes volatile, it attracts more volumes. I expect volumes to be on a stronger note."
After having declined toward 218 cents in early May, the rupee recovered last week, nearing 223 cents before easing. Concerns over sovereign debt problems in Europe overflowed into emerging markets as investors increased their purchases of safe haven assets. Investor sentiment shifted last week, however, as fund flows leaving developing markets eased.
Unni said: "The major concern for INR is volatility on stock markets, which are in a correction mode now. Whenever stock markets start to gain, foreign institutional investors' investment will also go up. This will boost the Indian rupee too. However, FIIs are pulling money out of emerging markets as the Euro zone economic crisis is impacting all the markets."
Given the financial problems in Europe, economic activity is expected to remain robust in India. The Reserve Bank of India forecasts the country to grow at least eight per cent this fiscal year, which begins in April. Meanwhile, concerns over inflation have eased slightly as it slowed to 9.6 per cent in April from 9.9 per cent in March.
"The rupee is likely to hold above 220 cents per 100 rupee and could try to move back above 222 cents later in the week," the CPM Group forecast in its weekly review.