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Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Ilya Spivak, Head Strategist, APAC

Gold and silver prices may rise amid expectations US inflation hit a six-month high in October, boosting demand for precious metals as a hedge against price growth.

Talking Points

  • Gold and Silver May Rise as US CPI Puts Inflation at 6-Month High
  • Crude Oil, Copper Aim Higher on Risk Trends But Threats Remain

Gold and silver price have rebuilt firm correlations with near-term US inflation expectations, represented by so-called “breakeven rates” (the difference between yields on nominal and inflation-adjusted US Treasury bonds). This hints that the outlook for price growth has re-entered the spotlight, putting US CPI data in focus over the coming hours. Expectations suggest the year-on-year inflation rate hit a 6-month high of 2.1 percent in October, which may boost demand for precious metals amid US Dollar dilution fears.

Meanwhile, crude oil and copper remain anchored to broad-based risk sentiment trends, telegraphed by firm correlations with the S&P 500. Futures tracking the benchmark stock index are pointing higher in overnight trade, hinting at the prevalence of a risk-on mood heading into the opening bell on Wall Street. Follow-through may prove problematic however as regional manufacturing activity gauges from the New York and Philadelphia Federal Reserve branches edge lower in November, warning the pickup in US performance noted since mid-year may be losing steam.

WTI Crude Oil (NY Close): $86.32 // +0.94 // +1.10%

Prices continue to hover above the 50%Fibonacci expansion at 83.76.A break below that exposes 80.00 figure and the 61.8% level at 7978. Resistance is at 86.95, marked by a falling trend line set from the September 14 high and reinforced by the 38.2% Fib 87.66. A push above that aims for the 90.00 figure and the 23.6% expansion at 92.53.

Commodities_Gold_Silver_May_Rise_as_US_Inflation_Hits_Six-Month_High_body_Picture_3.png, Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1726.35 // +1.35 // +0.08%

Prices are testing resistance at 1732.33, the 23.6% Fibonacci retracement. A push above that targets the 1790.55-1802.80 area. Near-term support is at 1693.06, the 38.2% Fib, a barrier reinforced by a rising trend line set from late June (now at 1687.00). A drop beneath the latter level targets the 50% Fib at 1661.32.

Commodities_Gold_Silver_May_Rise_as_US_Inflation_Hits_Six-Month_High_body_Picture_4.png, Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $32.68 // +0.19 // +0.58%

Prices edged above resistance at 32.36, the 38.2% Fibonacci retracement, exposing the 33.51-66 area marked by the 23.6% level and a former range bottom as the next upside objective. The 32.36 level has been recast as support, with a drop back below that targeting the 38.2% Fib at 31.43.

Commodities_Gold_Silver_May_Rise_as_US_Inflation_Hits_Six-Month_High_body_Picture_5.png, Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.454 // -0.018 // -0.52%

Prices are testing support at a rising trend line set from early October 2011 (3.402). A break downward initially targets horizontal support at 3.300. Near-term resistance is at 3.505, the 23.6% Fibonacci retracement, with a piercing above that exposing the 38.2% level at 3.568.

Commodities_Gold_Silver_May_Rise_as_US_Inflation_Hits_Six-Month_High_body_Picture_6.png, Commodities: Gold, Silver May Rise as US Inflation Hits Six-Month High

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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