1/27/2025

Gold and silver retreat as risk-off sentiment drives deleveraging pressures

OUTSIDE MARKET DEVELOPMENTS: Chinese AI startup DeepSeek's app supplanted ChatGPT as the most downloaded free app. The news rattled markets amid speculation that DeepSeek's reasoning capabilities and lower learning costs are a leap forward in the AI arms race. 

The uncertainty sapped risk appetite, calling into question the demand dynamics for high-end chips from the likes of Nvidia and AMD.  The news comes just days after President Trump announced a joint venture that would funnel billions of dollars into the buildout of U.S. AI infrastructure.

Nonetheless, President Trump begins his second full week in office with wind in his sails as a result of his pro-growth agenda. His approval rating after his first week in office is higher than at any point during his first term. Some pollsters say this has never happened before.

It is also becoming increasingly apparent that tough talk on tariffs may have indeed been a negotiating ploy. The administration doesn't appear to be overly eager to impose harsh tariffs on trading partners...at least thus far.

The Fed is widely expected to hold steady on rates this week, despite Trump's demand for lower interest rates. Fed funds futures continue to suggest the central bank is on hold until midyear.

Chicago Fed National Activity Index rebounded to 0.15 in December, above expectations of 0.1, versus a positive revised -0.01 in November (was -0.12). Production and employment-related indicators contributed positively to the net increase.

New Home Sales rose 3.6% to 698k in December, above expectations of 670k, versus 664k in November. That's the best print since September, despite the ongoing headwind of high mortgage rates.

Dallas Fed Index surged to a more than three-year high of 14.1 in January, versus a positive revised 4.5 in December. The Dallas Fed noted that "Upward pressure on prices and wages increased this month."


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.70 (-0.03%)
5-Day Change: +$43.77 (+1.62%)
YTD Range: $2,607.16 - $2,784.96
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +32.11

Gold has come under deleveraging pressure as stock markets are roiled by DeepSeek uncertainty. The yellow metal has approached the midpoint of last week's range, but weakness in yields and the dollar should help limit the downside.



The initial failure to crack the $2,789.68/$2,541.42 range is partially attributable to the overbought condition that was developing after four consecutive weekly gains. The 14-day RSI reached its highest point since late October.

If DeepSeek is ultimately determined to be a black swan for the AI sector, some of the risk-off flows are likely to find their way into gold. If today's stock market volatility ends up being all hype, the previously prevailing fundamentals should lead to an upside breakout of the $2,789.68/$2,541.42 range.

The technicals remain broadly supportive. Uncertainty about U.S. trade policy intentions continues to provide haven interest. Additionally, there seems to be some level of market hope for a slightly less hawkish tilt from the Fed this week. I'm not so sure...

The lower gold price and a weaker dollar should make the yellow metal more appealing ahead of Wednesday's Lunar New Year. The gift of gold is considered an auspicious New Year's gift across Asia.

However, China's net gold imports through Hong Kong plunged 84% m/m to 5.26 tonnes in December, versus 33.1 tonnes in November. The near-record price of gold and persistent growth risks continue to weigh on Chinese consumer demand.

North American investors aggressively sold ETF positions last week to the tune of 20.9 tonnes. It was the biggest North American outflow since October 2022. However, European investors continued to buy resulting in a more modest net outflow of 7.7 tonnes.

The COT report for last week showed net speculative long positions expanded by 21.4k to 300.8k contracts in the week ended 24-Jan. It was the third straight weekly increase and the highest net spec reading since 27-Sep'24.

A rebound above $2,750.00/$2,751.04 would ease short-term pressure on the downside, favoring renewed attacks on the upside. Last week's high at $2,784.96 reinforced the high end of the range.

The breach of minor chart support at $2.738.11 (Thursday's low), suggests gold is vulnerable to the $2,700 zone before renewed buying interest surfaces. More substantial chart support is noted at $2,691.47/$2,690.08.

Silver has tumbled back into the range after failing to convincingly clear the $31 threshold last week. Uncertainty about tariffs, ongoing worries about China's growth prospects, and today's risk-off sentiment keep the white metal well contained.



I have maintained that new record highs in gold were needed to pull silver above $31 and unlock the more important $32 zone. With the 100-day MA intact on the upside and silver testing back below the 200-day, the downside remains vulnerable. 

The next tier of support I'm watching is defined by the mid-January lows at $29.573/553. Penetration of this level would clear the way for another run at the $28.802/783 double bottom.

The COT report for the 24-Jan week revealed that net speculative long positioning rose 1.4k to a ten-week high of 47.5k contracts from 46.1k in the previous week. It was the third consecutive weekly increase.

CFTC Silver speculative net positions

Today's intraday high at $30.651 now protects the more important $30.977/$31.004 level, where the 100-day MA corresponds with last week's high.


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

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.