Silver Up, Then Down

Silver rallied to start the week as all contract months were up four percent or more. This rally comes in the midst of the dollar’s tumble that started last week. Since last Wednesday’s intraday high of 110.79 the dollar index dropped over 2 points. Last week’s peak over 110 was last seen in 2002. Today’s inflation data has seen a reversal in the dollar index, given the Fed’s repeatedly restated commitment to bringing inflation down to around 2%. As we look forward to next week’s Fed meeting, today’s inflation numbers (CPI +0.1%, Core CPI + 0.6, both above expectations) were hoped to spur the Fed to reduce the pace and/or magnitude of the hikes. That could have provided support to the metals complex as a relatively more attractive safe haven than money markets and treasuries. In the immediate aftermath of the inflation data, the December silver contract dropped over 50 cents. The CFTC’s Commitment of Traders report last Tuesday showed an increase in net-short exposure for the third straight week. The Hightower Report posits that Monday’s rally could be an indication of short-covering in the aftermath of last week’s report.

Internationally, European markets were all up Monday despite the European Central Bank’s 75 basis point rate hike last Thursday. The ECB’s Governing Council also shed light on plans to “raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.” Eurozone inflation came in at 9.1% in August dominated by a rise in energy costs, currently near 40% year-over-year. Asia and Australia were also up except for China’s Hang Seng and Shanghai exchanges, which were closed for the Mid-Autumn Festival.