Gold consolidates recent gains while silver pressures the weekly low

OUTSIDE MARKET DEVELOPMENTS: President Trump is scheduled to appear virtually at the World Economic Forum today at 11:00 am EST. The annual meeting held in Davos Switzerland began on inauguration day and undoubtedly President Trump has been a hot topic of discussion.

The speech should be entertaining, and reportedly a question and answer session will follow. When asked about Trump, Botswana's President Duma Boko summed him up nicely: "He engages in what we would regard as robust diplomacy." I think it was meant as a compliment.

Boko went on to suggest that Trump's rhetoric should not be taken literally, but should be taken seriously. "He will take pragmatic decisions," he said.

The EU is already signaling a willingness to address its trade imbalance with the U.S. to ward off tariffs that would adversely impact the Continent's already flagging economy. European Commission EVP Valdis Dombrovskis said he is open to discussing increased energy and weapons purchases.

The ECB, BoE, and BoC all appear poised for further rate cuts at their next meetings amid heightened growth risks. Meanwhile, the Fed is widely expected to hold steady when the FOMC meets next week.

Norges Bank held steady today but signaled a cut is probably on tap for March. The BoJ is expected to hike its policy rate by 25 bps tomorrow to 0.5%. 

Fed funds futures continue to suggest the next Fed rate cut won't happen until June or July. However, there are increased rumblings that the Fed's next move could be a hike if Trump's trade policies re-stoke inflation. "I think rate hikes are possible," said BNY CEO Robin Vince at the WEF.

The dollar has retreated from its highest levels in over two years this week, but interest rate differentials will continue to underpin the greenback. The underlying trend remains bullish.

Initial Jobless Claims rose 6k to 223k in the week ended 18-Jan, above expectations of 215k, versus 217k in the previous week. Continuing jobless claims surged 46k to a three-year high of 1,899k in the 11-Jan week from 1,853k in the previous week.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$4.05 (-0.15%)
5-Day Change: +$25.73 (+0.95%)
YTD Range: $2,607.16 - $2,763.00
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +32.79

Gold has eased from Wednesday's 12-week high, but even this modest setback has attracted some buying interest. While the well-defined $2,789.68/$2,541.42 range is intact, further attacks on the upside are favored amid persistent uncertainty associated with President Trump's agenda.



An eventual move to new all-time highs would clear the way for an upside extension to a Fibonacci target at $2,857.21. Beyond that, the $2936 measuring objective and the long-standing $3,000 target attract.

From a technical perspective, the 20-day moving average has bounced smartly off the 100-day. It appears that the 50-day is going to hold above the 100-day as well.

ETF inflows were solid last week, and I think further inflows this week will be confirmed as well. This is also true of net speculative long positions in the futures market.

Ross Norman of Metals Daily says the massive flow of physical gold from London to New York and the attendant surge in lease rates triggered short-covering, which contributed to gold's recent rally. "The possibility that gold and silver imports might incur a significant additional cost, New York dealers are asking for physical delivery," said Norman in a post.

Norman believes that if gold tariffs don't materialize, "then likely that metal will come home to London over the next few months." But what if the Trump administration doesn't provide clarity on tariffs, or tariffs are imposed? I think that would prompt London bullion banks to go to the market to rebuild loco London stocks.

The developing overbought condition noted earlier in the week is still seen as a potentially limiting factor. While the dollar has been under modest pressure this week, the underlying trend remains bullish and a headwind for gold.

Today's earlier low of $2,738.11 now defines initial support. More important supports are at $2,705.15/$2,700.00 and $2.690.08 (Monday's low).

Silver tumbled in early U.S. trading to pressure the low for the week at $30.141 as global growth risks and tariff uncertainty continue to weigh on industrial metals. The failure to climb back above $31 this week leaves the downside vulnerable.


 
The white metal is back below the 50-day moving average and a convincing breach of $31.141 would clear the way for tests of the 20-day and 200-day MAs which are both at $30.047 today. A move below $30 would bring the  $28.802/783 double bottom back in focus.

The highs from the last two weeks at $30.945 and $30.956 reinforces the significance of the 31-handle. A trade above $31 is needed to set a more neutral near-term tone and $32 must be cleared to revive interest in the long-term uptrend.


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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