Metals wobble after strong CPI report
By Stanislav Bernukhov
12 January 2024
The publication of US inflation data was surprisingly strong. The US CPI index advanced to 3.4% – the highest value within three months. The biggest price hike was associated with services, and energy prices displayed an uptick for the first time since September 2023.
The market reaction was nervous: tech stocks plummeted, though this drop was later trimmed by strong responsive buying activity, with notable strength in the Nasdaq index.
However, the reaction of the dollar index was muted, as the current strength of inflation has very limited influence on the yields of treasury bonds and the probabilities of interest rate hikes in 2024. The current consensus in the market assumes that the Fed will most likely turn dovish in 2024, leading traders to presumably be bearish on the US dollar.
Theoretically, metals – particularly gold and silver – should benefit from this situation, but we’ve seen a different reaction. Unlike the Nasdaq, gold had a modest buying response after the initial drop from the CPI publication.
Does it have a chance to recover and continue to rally?
Despite the choppiness of price action, gold and silver still might provide traders with decent bullish swings. Let’s figure out the potential scenarios.
Gold has been consolidating in a narrow, choppy trading range between $2015 (USD) and $2050 since the beginning of January. This reaction doesn’t seem too bearish, though for now, gold is not showing any signs of responsive buying and is driven mostly by a negative correlation with the US dollar and lacks internal drivers.
However, it might react to some positive economic news, such as corporate earnings, which are just around the corner. A bullish signal could be a big boost, after which the price could advance to $2080.
Silver, unlike gold, did not display any rising trend in 2023, but rather consolidated in a wide trading range. With a performance like that, normal activity would assume potential testing of an area below the previous intermediate-term low of 22.48. Should it bounce back after this test, buyers might take control for a short-term period until the price reaches the $23.50 - $24 zone: the next technical resistance.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Stanislav Bernukhov is a professional and trained trading trainer with 15 years of experience in this field. He specializes in multiple trading methods, including price action, Market auction theory, and unconventional graphical analysis.