Silver price to turn on US consumer price inflation?
London (Feb 20) Silver has so far today declined sharply after data showed that the Chinese manufacturing sector slowed further in January. In Asian trading today, the precious metal touched a 2-day low of 21.408 as the market fine-tuned it’s expectations on the Chinese economic outlook. The People's Republic of China plays a central role in commodity markets, accounting for much of the increase in global demand over the past decade.
The HSBC Flash China Manufacturing PMI dropped to a seven-month low of 48.3 in February, falling short of forecasts for more modest contraction to 49.4 from January’s 49.5. However, Nordea Markets senior analyst Amy Yuan Zhuang advises “against taking Chinese data too literally in January and February, because of the Lunar New Year seasonal effect”. Zhuang points out that due to the Lunar New Year holiday from 31 January to 6 February, “there have been fewer working days in February than other months”. “It is a mystery how a great power like China lacks the ability to adjust for seasonal distortion from the Lunar New Year, which occurs every year either in January or February.” However, the Chinese PMIs have historically rebounded in March after the New Year hangover.
Nordea Markets’ senior analyst believes the plunge in the employment sub-index to 46.9, the lowest level since 2009, is because some of the 270 million migrant Chinese workers found better opportunities close to their homes during the holiday season.
The highlight today for silver will be the release of the US Consumer Price Index for January at 13.30 UTC. Given the increased significance inflation has lately taken on in the Fed's forward guidance, some on the Street — like Goldman Sachs chief economist Jan Hatzius and Credit Suisse chief economist Neal Soss — believe inflation reports are the new jobs reports. The price of the precious metal is going to be particularly attentive to the release given silver’s appeal as a hedge against inflation.
The headline CPI is expected to show a rise of 1.6 percent y/y, following December’s 1.5 percent. However, the core consumer inflation is anticipated to ease to 1.6 percent y/y in January from the prior month’s 1.7 percent.
Right now, silver is trading at around $21.80.