Silver Prices: Bearish Case Strengthens On U.S. PCE Inflation Reading

2015-12-23 15:43:00

Alejandro Zambrano, Market Analyst

Talking Points

The situation is little changed for silver prices and the overall trend remains bearish below the December high of $14.22.
Today’s U.S. Headline and Core PCE readings strengthens the case for further Fed rate hikes, as the headline reading increased to 0.4% YoY from 0.2%. This is silver price bearish

The situation is little changed for silver prices and the overall trend remains bearish below the December high of $14.22. Traders are most likely keeping a bearish bias given the trend, and the risk-reward ratio is favourable for short positions at current levels ($14.22) if the price reaches the lower end of the current range at $13.59.

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Higher Inflation Readings To Boosts Fed Rate Hike Expectations

Today’s U.S. Headline and Core PCE readings strengthens the case of further Fed rate hikes as the headline reading increased to 0.4% YoY from 0.2%. While Core inflation remained unchanged at 1.3% YoY. A higher Feds funds rate is silver price bearish.

At the latest Fed rate meeting on December 17, 2015, the Fed projected PCE inflation to rise to 1.6% by the end of 2016 and for the Fed Funds rate to be at 1.4%. The unemployment rate and GDP change is expected to remain near current levels. With this in mind it appears that future Fed rate hikes are primarily motived by higher PCE inflation.

In other news, Durable Goods orders excluding transportation declined by 1.92% YoY from -2.42% in October. Whilst Durable goods order are still contracting, the contraction is less aggressive than previously which is good. Durable goods orders YoY has a 0.70 correlation to U.S. GDP YoY, and is now projecting a U.S. GDP growth near 1% YoY. The last official U.S. GDP reading places it at 2.1% YoY.

Silver Prices / XAGUSD