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Silver falls to two-month lows amid rising yields, strong USD

Today's main event is the US CPI report. How will silver react?

Precious metals have been dropping recently as traders are betting the Fed will be even more hawkish than previously thought, sending short-term yields higher. Both gold and silver usually struggle in such an environment, and this time was no exception.

At the time of writing, silver was down 0.4%, trading below the 22 USD threshold for the first time since late September. Gold was also weaker, falling below 1,770 USD.

US inflation report under scrutiny

Later in the day, the critical US CPI report for November is due; inflation is expected to rise again to 6.8% yearly, up from 6.2% in October. That would be the highest inflation number since 1982 . Keep in mind that the Fed funds rate was around 15% back in those days. Today, it is at zero.

The core inflation gauge is seen rising to 4.9%, up from 4.6% previously.

The US inflation data is likely to cement the hawkish Fed expectations, with a 44% probability of a June 2022 rate hike, according to the CME Group’s FedWatch Tool.

The Fed will decide about monetary policy next Wednesday, possibly announcing a quicker pace of tapering, especially if today’s inflation rises above expectations.

Volatility is expected to be elevated after the CPI release . After last month’s report, both gold and silver surged as reported inflation was higher than expected. However, the short-term uptrend died quickly, and traders sold the metals amid more monetary policy tightening and higher yields.

Today’s price action might follow a similar pattern – the initial rally could be sold quickly. However, silver appears very oversold as it has been falling nonstop since the previous CPI report. Therefore, today’s data might actually lead to a more significant bounce from the oversold conditions.

Is an oversold rally going to happen?

The daily chart still looks bearish, with the next target at September lows near 21.50 USD. Failure to defend this level would confirm the bearish bias, most likely leading to a decline toward the psychological level of 20 USD.

However, as previously said, silver looks oversold, possibly leading to a short squeeze rally after today’s numbers. The short-term resistance is near this week’s highs at 22.50 USD. A rally above that level could trigger stop-losses of short positions, likely sending the commodity toward the 23 USD threshold.

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