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Silver prices rise, but disconnect between CPI and PPI magnifies volatility, risk - FX Empire's Lewis

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(Kitco News) - Silver prices are seeing a bump in trading on Wednesday, but contradictory U.S. inflation data is magnifying the volatility and the risk for precious metals investors, according to Christopher Lewis, market analyst at FX Empire.

“Silver rallied a bit during the trading session on Wednesday, testing the recent highs yet again,” Lewis said. “The market is likely to continue to be very noisy and silver is quite often very difficult to get a handle on anyway.”

Lewis noted that the market had given back some of the gains at the very top of the candlestick, so whether or not silver can break out remains to be seen. “Somewhere around the $24 level there are a lot of traders willing to short this market,” he wrote.

Lewis said he also thinks silver is going to be paying more attention to the bond market than anything else. “After all, the interest rate markets have a directly negative correlation.”

The 200-Day EMA was offering support at the bottom of the daily candlestick, which Lewis noted was an area that needed to be watched closely. “If we were to break down below the 200-Day EMA, then the market could drop down to the 50-Day EMA,” he wrote. “But at this point it looks like there would be plenty of buyers underneath given enough time.”

He said the fact that Wednesday’s PPI numbers came out hotter than anticipated, directly contradicting the CPI numbers from the previous session, was adding to the noise in the market. “In other words, expect to see a lot of noisy behavior, and therefore you need to be very cautious with your position sizing,” Lewis said.

“It’s also worth noting that the silver market has shot straight up in the air over the last couple of days, and therefore a little bit of a pullback and a reentry makes more sense than anything else,” he wrote. “However, if we break above the $24 level, then it’s likely that we could go looking to the $25 level.”

Lewis believes that overall, the silver market is continuing to consolidate. “I find silver a bit too expensive at this point, but I would follow the momentum if we did break out, something that is possible at this point in time,” he said, adding that he believes it is likely “that the market just simply chops around and causes more volatility than anything else.”

COMEX silver futures last traded at $23.555, up 1.83% on the session at the time of writing.

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