Silver Falls to 3-Week Lows, Eyes 21 USD

CPI comes in hot

Consumer prices rose by far larger than expected 1.0% monthly (significantly higher than the +0.3% MoM in April and the +0.7% Expected). That sent the yearly CPI to +8.6% - a new cycle high, well above 8.6% projected. At the same time, the core CPI rose 6%, down from 6.2% previously, but above expectations of 6.0%.

While almost all major components increased over the month, the most significant contributors were the indexes for shelter, airline fares, used cars and trucks, and new vehicles.

As a result, the USD shot higher, along with US yields, bringing the 2-year yield to new cycle highs at 2.9%. 

"In an environment where most major developed market central banks are taking aggressive action to bring inflation down, risk assets (including silver) are likely to remain volatile and struggle to sustain rallies," said UBS Global Wealth Management CIO Mark Haefele in a note. "This dynamic should persist until there is a clear indication that inflation is trending lower, which may not occur until well into the second half of the year."

Uptrend broken

Technically speaking, silver broke below May's upward trend line, ending the short-term uptrend. Additionally, the first support of 21.40 USD has been broken, sending the price to another demand zone at 21.30 USD.

If the price closes below 21.30 USD, we might see a quick decline toward the current cycle lows near 20.60 USD as larger stop-losses are expected below 21.30 USD.

Alternatively, the resistance could be near 21.70 USD; if not held, silver could jump toward the broken trend line near 22 USD.