Silver and gold climbed on Wednesday, capitalizing on weaker USD. Metals ignored rising rate-hike expectations and staged an impressive rally.
Inflation will not be transitory
Earlier today, the headline CPI came out hotter than expected – +0.4% month-on-month versus +0.3% expected), with the yearly change edging higher +5.4%. That is equal to its highest since July 2008. Moreover, inflation is showing no signs of weakening, undermining the whole “transitory” mantra.
The core inflation ticked higher to 0.2% MoM (versus +0.1% expected), leaving YoY flat around +4.0%.
Both gold and silver fell notably after the release, but the dip was quickly bought, and silver rose to new daily highs, pushing above 23 USD and rising more than 2% on the day.
The last few days have seen short-term rate expectations jump higher and today’s hotter than expected headline CPI pushed them one step further. As a result, market participants now see a 90% chance of a rate hike by September 2022.
However, that is still one year away! Considering that inflation continues to rise rapidly, the Fed should start tapering immediately and begin raising rates as soon as possible.
On Tuesday, Atlanta Fed President Raphael Bostic noted that belief in the ‘transitory’ inflation pressures – something that has guided Fed policy for the last 12 months – may be fading at the central bank. However, it is unlikely that the FOMC committee will be more hawkish than previously expected.
Later in the day, the FOMC minutes from September’s Fed meeting will be released, possibly causing more market volatility.
From other news, the IMF downgraded its global growth forecast and now expects world GDP to rise 5.9% this year, down 0.1% from what it anticipated in July, citing rising inflation and supply-chain disruptions.
Central banks will need to provide clear guidance about their future approach to monetary policy, aiming to avoid an unwarranted or abrupt tightening of financial conditions. Monetary authorities should remain vigilant, and if price pressures turn out to be more persistent than anticipated, act decisively to avoid an unmooring of inflation expectations, the fund said in its statement.
The next resistance for silver is at 23.35 USD, where the 50-day moving average is seen. The last time, in September, it sent silver to new lows. But it looks like a relief rally could be upon us since silver is rising on otherwise bearish news.
In case of a bullish breakout, the following target will likely be at 23.90 USD, with a possible rally toward the 24.80 USD zone. There is a nice bullish divergence between the MACD indicator and the price, supporting the bullish thesis for now.
Alternatively, the support is in the 22.50 USD range, and silver needs to stay above it for the short-term outlook to remain bullish.
Silver daily chart, Source: Author´s analysis, tradingview.com
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