Tuesday was particularly rough on risk assets as the Core CPI numbers in the United States came out at 0.6%, twice the expected 0.3%. This has people worried about the Federal Reserve has to become even more aggressive, and a lot of the “hopium” was sucked out of the room rather quickly.
Silver took it on the chin, and I think it will continue to. This is because the US dollar is like a wrecking ball for a lot of commodities, with silver being especially sensitive. After all, silver is volatile under the best of circumstances, and is an industrial metal more than anything else. In fact, I have a rule that if I am going to trade precious metals, I buy gold when metals are going higher, and a short silver when they are going lower. This is because one silver falls out of bed, it falls hard.
Now that we are below the 50-Day EMA, and have reacted to the downtrend line, it’s very likely that silver will find its way back down to the $18 level. Of particular note is US dollar strength, so you should be paying attention to the 10 year yield, and of course the US Dollar Index. These both can have a major influence on what happens with silver as there is a high negative correlation typically.
It is at the $18 level that I think a huge fight begins. Underneath $18, silver will more likely than not drop down to the $15 an ounce level. On the other hand, if we somehow break above the $20 level, we will have cleared quite a bit of resistance, and we could start to rethink the entire situation. At this point, the US dollar is like a wrecking ball to everything else, and I just don’t see how silver changes its tune anytime soon. I may look for short-term rallies to fine-tune a short entry, but the 2% that we lost on Tuesday is just the beginning I fear.