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Precious metals spike higher on US inflation data

The US inflation data has risen to levels not seen for several decades and the traditional assets used as a hedge against monetary inflation spiked higher. Silver and gold are up 1.89% and 1.03% respectively and with the sentiment being very biased towards the long side in silver, I am expecting a very sharp fall in the coming days.


Market Wrap

Following on from the US scheduled economic release around inflation today, the precious metals markets surged higher. Looking at an intraday chart, there is a negative divergence occurring on the RSI versus the price action, which has made a higher high, so I will be watching for a possible reversal. This would assume that the retail traders have been sucked into a long trade and trapping them. However, if there is not a sharp reversal in the coming sessions, I will have to concede that there is a possibility that precious metals are going higher as inflation is likely to stay higher for longer and traders use precious metals as an inflation hedge at times.

The annual CPI figure from the United States reached a new record high of 8.5% before seasonal adjustment, according to the Bureau of Labour Statistics. The monthly inflation hit market estimates at 1.2%. The largest contributors to inflation were increases in gasoline, shelter, and food prices. The price of energy increased by 11% last month, bringing the annual inflation rate to its highest level since December 1981. Monthly Core inflation came in under market expectations which is the first positive for people worried about inflation and this could be down to the drop in energy prices since the Ukraine invasion spike.

Brent spiked higher earlier today and has reached a daily low, resistance level, that I have been monitoring. The intraday RSI is also overbought, so now I am looking for an intraday reversal pattern for a move back to the $100 level.

The Organization of the Petroleum Exporting Countries (OPEC) came out with a report detailing the global growth forecast for crude demand will be less by 0.5 million barrels per day (BPD) at 3.7 million BPD compared to its previous update. Less demand should also help prices of energy come down, especially as there is now an SPR release scheduled for the rest of the year.

According to the ZEW economic sentiment index, Germany's economic performance worsened further in April compared with March, with the key index declining less than expected to -41 points. The economic outlook for the next six months remains pessimistic with experts predicting it will continue to deteriorate and lead to stagflation. For the same period, the Eurozone survey expectations showed the index tumbled to -43 points, slightly below market estimates.

The EURUSD also found resistance at a previous day’s low price and made a significant rejection move lower at the start of the US session. The US dollar index is holding around 100 and the economic news out of Europe is not supporting the single currency, so I am still expecting to see lower lows in the coming sessions, with a possible pause or reversal ahead of the ECB this week.

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