Silver's corrective rally likely over

Today’s much hotter-than-expected US inflation report has wiped out days of gains for stocks, while the dollar has rallied sharply which in turn has weighed on gold and silver.

Silver rallied to the $20 handle the day before as talks of peak inflation had weighed on the greenback. But the latter stormed back to life after a stronger inflation reading led to speculation about a possible 100 basis point hike next week!

Today’s CPI data reinforced expectations that the Fed is going to raise rates aggressively until inflation comes back under control. Against this backdrop, it is difficult to see how zero- and low-yielding assets will be able to rise much given that government bonds around the world will provide better yields.

Gold fell to below $1700 again in the aftermath of the hot US inflation report, before bouncing off its lows. But the breakdown below some key short-term levels has now tipped the balance back in the bears’ favour and a drop to a new low on the year looks increasingly likely.

Silver is likewise likely to have ended bullish hopes for a break above $20. A close around current levels or lower will likely trigger fresh selling towards the point of origin of the last breakout at $18.95, potentially ahead of more losses.
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