The recent release of US inflation data has sent ripples through the financial markets, with some surprising developments and uncertainties emerging. The US Consumer Price Index (CPI) made a noteworthy ascent to 3.4%, marking its highest level in three months. The most substantial price surge was observed in the services sector, and energy prices recorded an upturn for the first time since September 2023.
This robust inflation report had an immediate impact on various asset classes, sparking a wave of market volatility. Initially, the tech sector bore the brunt of the turbulence, witnessing a sharp decline in tech stocks. However, this downward trajectory was mitigated by robust buying activity, which was especially pronounced in the Nasdaq index.
Interestingly, the response of the US dollar index was relatively subdued. This muted reaction can be attributed to the perception that the current inflationary pressures have limited influence on Treasury bond yields and the likelihood of interest rate hikes in 2024. The prevailing consensus in the market is leaning towards the Federal Reserve adopting a dovish stance this year, leading many traders to adopt a bearish outlook on the US dollar. In theory, metals, particularly gold and silver, should stand to benefit from this economic landscape. However, the reality has been different. Unlike the Nasdaq, gold exhibited only a modest buying response after the initial dip following the CPI release. The question on many traders' minds is whether gold has the potential to recover and resume its rally. Despite the choppy price action, both gold and silver may still offer traders opportunities for bullish swings. To gain insight into potential scenarios, let's delve into an analysis of these precious metals.
Gold
Gold has been caught in a tight, choppy trading range between $2015 (USD) and $2050 since the start of January. While this price action may not appear overtly bearish, it lacks any clear signs of responsive buying and is primarily influenced by its negative correlation with the US dollar. As of now, it seems to be lacking internal drivers.
However, gold could respond positively to favorable economic news, such as corporate earnings reports, which are on the horizon. A bullish signal to watch for would be a substantial upward movement, potentially propelling the price towards the $2080 level.
Silver
In contrast to gold, silver did not exhibit a pronounced upward trend in 2023. Instead, it maintained a broader consolidation pattern within a wide trading range. Given this performance, it wouldn't be unreasonable to anticipate a potential test of the area below the previous intermediate-term low of 22.48. If silver rebounds following this test, it may usher in a period of buyer control for the short term, eventually targeting the $23.50 - $24 zone, representing the next significant technical resistance level.
