Silver Price Forecast: XAG/USD drops below $19.00 due to hot US CPI, US bond yields rising

• Silver prices tumble from $19.30s daily highs below $18.80.
• US core inflation expanded at a 40-year high, at 6.6% YoY.
• US October’s data so far justifies another 75 bps rate hike by the Fed.

Silver price tumbles below $19.00 on the news reported by the Department of Labor, revealing that inflation in the US remains stubbornly stickier, particularly core figures, surpassing the 6.5% threshold at 4-decade highs. At the time of writing, XAG/USD is trading at $18.81 a troy ounce, down by 1.40%.

XAG/USD tumbles after hot US CPI, as traders brace for further Fed rate hikes

US data revealed in the US showed that inflation per the headline and core measure persists at high levels, with core CPI exceeding estimates at 6.6% YoY, higher than August’s 6.3%, blamed principally on transportation services, medical care, and shelter. In the meantime, headline inflation, namely, the Consumer Price Index, expanded at an 8.2% pace YoY, less than the previous reading, almost 1% down from its peak on June 2022.

The market’s reaction immediately sought safety, propelling US Treasury bond yields higher, with 2s, and 5s, reaching 4.46% and 4.24%, respectively, as traders brace for another jumbo rate hike by the Fed at November’s meeting.

Similarly, the US 10-year benchmark note is yielding 3.98%, down from its 4.08% reached earlier on the release of hot US inflation. The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, is pairing its earlier gains, down 0.03% at 113.169, after hitting a daily high of 113.920.

Elsewhere, US Initial Jobless Claims for the week ending on October 8 came at 228K, above the previous week’s reading, exceeding estimates of 225K. Even though it flashed that the labor market is easing,  last week’s US Nonfarm Payrolls report showed the contrary.

Given the backdrop, Federal Reserve odds of a 75 bps rate hike are fully priced in, as shown by the CME FedWatch Tool, at 99%.

Therefore, XAG/USD would likely continue to extend its losses after hitting a daily high at $19.30, to collapse below $18.70, weighed by high US Treasury bond yields. Also, traders should take cues from real yields or use as a proxy, US Treasury Inflation-Protected Securities (TIPS), with the 10-year yielding as high as 1.757%, though stabilized, at the time of press, is around 1.658%.

Source: Reuters

Next in the US calendar, further Fed speaking is expected, with Atlanta’s Fed President Raphael Bostic being the first to cross wires, following the US inflation report. On Friday, US Retail Sales and the University of Michigan Consumer Sentiment will update the status of the US economy.

XAG/USD Key Technical Levels