Silver prices drops back below $24.50 following downbeat Chinese CPI numbers

• Spot silver prices trade in the red on Wednesday, taking a knock after soft Chinese inflation data.
• XAG/USD has now broken back into its early December $23.50s-$24.40s range.

Spot silver (XAG/USD) prices have lost a grip on the $24.50 level Wednesday Asia session trade, with downside seemingly exacerbated by downbeat Chinese CPI numbers that saw the economy unexpectedly fall into deflation in November. Buyers rushed in to keep the precious metal bid above $24.00, however, as real rates remain close to recent lows. Since the start of the Wednesday European session, silver prices have traded within a $24.00 to just below $24.50 range. At present, XAG/USD trades with losses of around 1.7% or over 40 cents.

Soft Chinese inflation numbers hurt precious metal demand

Softer than expected Consumer Price Inflation data out of China at 01:30GMT during Wednesday’s Asia session has dealt a minor setback to precious metal demand, with gold down around 1.0% and silver down 1.7%. Precious metals are seen as a hedge against future fiat currency devaluation, which explains the strong performance of precious metals over the past two years or so as global central bank have moved to expand money supply in order to stimulate their economies.

However, the purchasing power of the Chinese yuan (in so far as its ability to purchase a basket of consumer goods) unexpectedly rose in November. Indeed, the Consumer Price Index dropped 0.6% MoM during the month, bring the YoY rate of price growth into negative territory at -0.5%. The Producer Price Index was also in negative territory, though not by as much as feared (coming in at -1.5% versus expectations for a drop in producer prices of 1.8%).

XAG/USD slips back into previous range, holds above 21DMA

Since slipping back from Tuesday’s $24.40s-$24.80s intra-day range, XAG/USD prices have now re-entered a trading range that prevailed for the first week of December. To top of this trading range, and having already offered solid resistance on Wednesday, is the $24.41 level (the 4 December high). The bottom of this trading range is in the $23.50s (the 2 and 7 December lows). Prior to making it down to the bottom of this range, however, spot silver is going to need to break to the downside of the psychological $24.00 level and then below its 21-day moving average at $23.95.