Pressure on gold and silver prices following US inflation figures

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(Kitco News) – Gold and silver prices are markedly lower at the start of the U.S. trading session on Tuesday after a surprisingly warmer-than-expected inflation report bolsters notions that the Federal Reserve will maintain its aggressive monetary policy tightening. October gold was last down $20.10 at $1,710.90 and December silver was down $0.22 at $19.63.

The consumer price index for August was reported up 8.3%, year-on-year, against forecasts of an 8.0% increase. On a monthly basis, August’s CPI rose 0.1% from July. The July CPI report showed an increase of 8.5% per year. The food and energy component of the CPI report rose 0.6% in August, double expectations for a 0.3% rise. There had been some signs in the economy that US inflation is slowing down a bit, but today’s data suggests inflation is still hot and could get hotter. Today’s CPI data roughly guarantees that the Federal Reserve’s FOMC will raise the main US interest rate, the federal funds rate, by at least 0.75% next week. Fed funds rate futures suggest a 20% chance that the FOMC could raise the federal funds rate by 1.0% at the FOMC meeting next week.

Global equity markets were mixed but mostly firmer overnight. US stock indices were signaled at higher opens as the day’s session in New York began, but then sold off sharply after the CPI report and are poised for significantly lower opens. Major U.S. equity indices saw short-term downward price trends reversed.

Major outside markets are seeing Nymex crude oil prices firming today and trading around $88.25 a barrel. The US Dollar Index is higher at the start of US trading and rebounded from lower levels overnight. The yield on the 10-year US Treasury rose after the CPI report and hit 3.418%.

Other U.S. economic data due out on Tuesday include the Johnson Redbook and chain store weekly retail sales indices, the NFIB small business index, real earnings, the IDB economic optimism index/ TIPP and the Treasury monthly budget statement.

Technically, October gold futures have the overall short-term technical advantage. Prices are still in a downtrend on the daily bar chart. However, a bullish double bottom reversal pattern may be forming on the daily bar chart. The next upside price target for the Bulls is to produce a close above the strong resistance at $1,769.30. Bears next short-term downside price objective is to push futures prices below strong technical support at the July low of $1,686.30. First resistance is seen at $1,725.00 and then at this week’s high at $1,736.40. First support is seen at $1,700.00 and then at $1,686.30. Wyckoff Market Rating: 2.0

September silver futures have the overall short-term technical advantage, but the bulls have gained momentum. The next upside price objective for the silver bulls is to close prices above the strong technical resistance at $21.00. The next downside price objective for the bears is to close prices below the strong support at $18.00. The first resistance is seen at $20.00 and then at $20.25. The next support is seen at the overnight low of $19.51 and then at $19.00. Wyckoff Market Rating: 3.5.