Gold moves within 1% of record territory, but silver holds below $31

OUTSIDE MARKET DEVELOPMENTS: 

President Trump will remain in the spotlight – and a hot topic at the World Economic Forum in Davos – as his policy agenda is set in motion. Trump's priorities this week have been border security, immigration, energy, reducing the size of government, and trade. 

The President seemed to temper some tariff threats since his inauguration but amplify others. The latest tariff number associated with China is 10%, much more modest than the 60% figure floated during the campaign.

The Canadian dollar and Mexican peso were hit hard by Trump's pledge to impose sweeping 25% tariffs on Canada and Mexico on February 1. Outgoing Canadian Prime Minister Trudeau seemed confident that a deal would be reached, yet there are rumblings of retaliatory tariffs.

“If the American economy is going to see the boom that Donald Trump is predicting they are going to need more energy, more steel and aluminum more critical minerals, more of the things that Canada sells to the United States every single day,” reminded Trudeau.

Mexican President Sheinbaum noted that the America First Trade Policy memorandum signed on Monday references a free trade agreement signed during Trump's first term. That agreement remains in effect and has clear processes for addressing disputes.

Trump also has the EU in his sights warning that they are "very, very bad to us. So they’re going to be in for tariffs." The EU's commissioner for the economy said, “If there is a need to defend our economic interests, we will be responding in a proportionate way.”

The ongoing rhetoric and inconsistent messaging continue to stoke uncertainty and worries about a trade war. Nonetheless, risk appetite remains elevated.

MBA Mortgage Applications rose a scant 0.1% in the week ended 17-Jan, following a 33.3% surge in the previous week. The 30-year year mortgage rate slipped to 7.02%, from 7.09%. It was the first decline in six weeks.

Leading Indicators fell 0.1% in December, in line with expectations, versus a positive revised +0.4% in November (was +0.3%). "Low consumer confidence about future business conditions, still relatively weak manufacturing orders, an increase in initial claims for unemployment, and a decline in building permits contributed to the decline," according to The Conference Board. The LEI's trend since the 2021 high belies the notion of U.S. economic resilience.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$11.80 (+0.43%)
5-Day Change: +$60.38 (+2.24%)
YTD Range: $2,607.16 - $2,763.00
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +33.89

Gold extended to set a 12-week high at $2,763.00 in overseas trade, helped by a defensive dollar. Suddenly the yellow metal is less than 1% off its all-time high.



Assuming a higher close today, gold will have posted gains in 15 of the past 23 sessions going back to 19-Dec. While the market is becoming overbought, there's all the significant resistances standing in front of the record high have been negated.

There continues to be market chatter about the massive inflows into Comex vaults. "Gold inventories on COMEX have swelled by more than 6 moz since the beginning of December, including additions of 676 koz last Wednesday which was the largest one-day addition of all time. Implied lease rates for very short-term gold lending are also very high, implying that liquidity on a less than one-month delivery is very tight," wrote Heraeus in a note.

Tight liquidity in market centers that sent ounces to the U.S. should continue to underpin the price. If those centers ultimately look to rebuild their stocks by buying on the open market, that could send gold to $3,000 and beyond.

Once new highs have been established, the next upside target would be $2,857.21 based on a Fibonacci projection. Further out, the $2,936 measuring objective off the symmetrical triangle breakout comes into play.

Setbacks into the range are likey to be viewed as buying opportunities. Today's Asian low at $2,742.63 should keep the more important $2,700 zone at bay.

Silver remains narrowly confined below $31, shrugging off the latest round of gains in gold. Trade worries are a headwind, but gold's strength and the soft dollar are providing some underpinning.

 

Last week's high at $30.892 corresponds closely with the 100-day moving avrerage at $30.916, preventing a move above $31. It's likely that there are some stops above $31, so a conving penetation could trigger gains back to $32.

That actually becomes the favored scenario upon new record highs in gold. A move above $32 would revive conficence in the underlying uptrend, but the December highs at $32.255/306 are seen as a formidble barrier.

Failure to clear $31 in short order would leave the white metal vulnerable back to the $30.141/$30.00 zone.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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