Silver spot price eases with taper talk subduing Chinese positives

Beijing-China (Nov 11)  The October US employment report came out significantly stronger than the markets had been expecting and in consequence the US Dollar Index rallied on Friday to a 60-day high at 81.56, while earlier today silver reached a 25-day bottom at 21.233 earlier today.

A combination of upwardly revised prior readings and surprise surge in US payroll creation has put average job growth over the past three months at 202,000 per month. Pertinently, several FOMC members are on record as saying that they would want to see the US economy adding more than 200,000 jobs per month before reducing the pace of the central bank’s QE programme. With the market joining the dots, silver lost support and the greenback got a boost on the resultant speculation of an earlier than hitherto anticipated taper.

Danske Bank analysts counsel though that as the strong job creation “puts December tapering from the Fed back in play much will depend on the strength of upcoming data”.

Right now, spot silver is trading around 21.371, down 0.24 percent intraday.

Over the weekend, China reported an unexpected acceleration in Industrial Output for October y/y to 10.3 percent, exceeding the forecasts for 10 percent and September’s growth of 10.2 percent. Industrial output has now expanded by more than 10 percent in each of the last three months, the longest stretch since the end of 2011.

On the price front, the People’s Republic’s October CPI has checked in at 3.2 percent, marginally below the expected annual increase of 3.3 percent. The People’s Bank of China is seeking to hold this year’s consumer price growth to around 3.5 percent, half a percentage point lower than the inflation target set for 2012.

While inflation remains in the comfort zone, the fastest uptick since February this year has begun to “flag an alarm for the monetary authority to keep a close watch on the trend,” observed Hu Yifan, chief economist at Haitong International Securities Group. The PRC government itself warned two weeks ago that price rises are likely to accelerate this quarter.

But according to Lu Ting, head of Greater China economics at Bank of America, “The recovery momentum is slightly stronger and more sustainable than what markets had expected and inflation is still not a threat.”

The CPI data comes after Friday’s report of an unexpectedly large jump in exports and adds to a picture of a Chinese economy again gaining strength. However, the positives from China have yet to materially register with the spot price of silver. Rising Chinese demand has generally been perceived as one of the main drivers behind the price growth of precious metals and other commodities since the start of the current millennium.