1/2/2025

Gold and silver jump on haven bid after New Year's terror attacks 

OUTSIDE MARKET DEVELOPMENTS: Terrorist attacks over the New Year holiday have stoked some flight to safety. The New Orleans attacker had “pledged allegiance to ISIS” and there have been reports that he may not have been operating alone.

The Sugar Bowl at the Super Dome was postponed amid risks of a follow-on attack. The Sugar Bowl is slated to be played this afternoon with heightened security measures.

The cybertruck explosion outside the Trump Las Vegas hotel is also being investigated as a terror attack. The FBI is trying to determine if there is any connection between the two attacks.

The dollar index jumped to fresh two-year highs, buoyed by risk aversion and weakness in the euro and pound. The greenback has been trending higher since October as it became increasingly clear that the U.S. economy and stock market were outperforming, which seems likely to continue into the new year.

U.S. economic and labor market strength has resulted in sticky inflation. Consequently, the Fed halved rates cut expectations for 2025 at the December FOMC meeting. This suggests interest rate differentials are likely to remain dollar-favorable.  

The Fed is expected to hold steady on rates at their next meeting on January 28-29. Fed funds futures suggest March could be a hold as well.

The inauguration of President-elect Trump on January 20 is another upcoming event fraught with uncertainty. Trump has pledged to act immediately on trade and immigration. There are worries that his actions could kick off a global trade war, stoke inflation, and undermine growth prospects.

MBA Mortgage Applications fell -10.7% in the week ended 20-Dec and fell -12.6% in the week ended 27-Dec. Mortgage rates have reached a 25-week high of 6.97%, weighing on both refinancing and purchase activity.

Initial Jobless Claims fell 9k to 211k in the week ended 28-Dec, below expectations of 221k, versus a revised 220k in the previous week. Continuing jobless claims slipped to 1,844k in the 21-Dec week, versus a revised 1,896k in the previous week.

JPM/S&P Global Manufacturing PMI was revised up to 49.4 for December, versus a 48.3 preliminary print and 49.7 in November. The net was a modest month-on-month drop and a sixth straight month in contraction below 50. International trade volumes fell for the seventh consecutive month. Business optimism fell to a three-month low.

Construction Spending was unchanged in November, below expectations of +0.3%, versus a revised +0.5% in October. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$36.29 (+1.39%)
5-Day Change: +$26.16 (+1.00%)
YTD Range: $2,607.16 - $2,645.29
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +26.38

Gold starts the new year on the bid, stoked by haven interest in the wake of two separate terror attacks in the U.S. and worries that there could be more. Treasuries and the dollar are also benefitting from risk-off sentiment, but gold is shrugging off fresh two-year highs in the dollar index.



Despite today’s gains, the yellow metal remains below the midpoint of the well-defined $2,789.68/$2,541.42 range that dominated the late months of 2024. That midpoint at $2,665.55 corresponds closely with the 16-Dec high at $2,663.89, and the 50-day moving average at $2,659.04.

The latter has already been exceeded and if $2,665.55 gives way as well, a more favorable tone within the range will be established. At that point, renewed tests above $2,700 would be favored.

More substantial chart resistance at $2,723.70 (12-Dec high) stands in front of the record high at $2,789.68. I do view the past several months of consolidation as a continuation pattern within the long-term uptrend. An eventual upside breakout will put gold back on the path for the attainment of the $3,000 objective.

Gold ended 2024 with a 27% gain driven by geopolitical tensions, political uncertainty, central bank buying, and global easing. It was the second consecutive annual gain and the largest since 2010.

Those same fundamental factors are expected to remain driving forces in 2025. However, the recent trimming of Fed rate cut expectations and a strong dollar are seen as headwinds.

On the downside, the low from Monday at $2,597.53 has been reinforced and joins $2,585.51 (19-Dec low) as solid intervening barriers ahead of the range low at $2,541.42.

Silver has been helped by haven interest and the gains in gold today, but remains below the 200-day moving average. Dimmed global growth prospects continue to be a weight on industrial metals, which includes silver.



Despite the downward bias since October, silver still notched a 22% annual gain in 2024. That is pretty impressive given the market is presently below all the major moving averages.

Analysts at Heraeus recently noted that "silver tends to outperform gold in the later stages of bull markets." If that's the case maybe we can infer that silver weakness late in 2024 means the bull market still has legs.

At 90 the gold/silver ratio does indeed suggest that silver is historically undervalued versus gold. Heraeus posits that "a reversion to the 27-year mean ratio of 67 as a result of a rally in silver implies a price of $40/oz.”

That bullish bias is supported by the broad supply/demand dynamics. The ongoing electrification of the world, including persistent demand for solar energy, bodes well for robust industrial demand.

Meanwhile, the Silver Institute projects the 2024 supply deficit will be 182Moz. They believe the market will be in deficit for a fifth straight year in 2025.

I need to see a sustained rebound above $30 to shift back to a more neutral tone within the old range. Such a move would confirm the small double bottom at $28.802/783 and suggest potential back to the $32 zone.

The $32 level must be exceeded to set a more favorable tone. At this point, silver doesn't seem to have the momentum to achieve that level.

The $28.802/783 lows are now a pretty formidable support ahead of the $28.306 Fibonacci level (78.6% retrace of the rally from $26.524 to $34.853) and the September low at $27.732.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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