Gold consolidates ahead of Fed, silver sets new highs for the week

OUTSIDE MARKET DEVELOPMENTS: The market's focus is on the Fed today. The policy decision itself is deemed to be a foregone conclusion – steady policy is expected – but the statement and Powell's presser could prove interesting.

While the trade seems to have revived hope for less hawkish guidance, apparently there's insufficient confidence to to price those hopes in. Fed funds futures continue to suggest the next 25 bps Fed cut won't happen until midyear.

I suspect that following President Trump's vow to push for lower interest rates, the Federal Open Market Committee (FOMC) and/or Chairman Powell will assert the Fed's independence. In my opinion, it's better to avoid directly challenging the President and focus instead on how monetary policy decisions must be data-driven.

The Bank of Canada cut rates by 25 bps as was widely expected. Forward guidance was more dovish amid heightened tariff uncertainty.

“The economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested,” according to the policy statement.

"A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada," worried Governor Tiff Macklem.

Sweden's Riksbank delivered a 25 bps rate cut, in line with expectations. "Inflation is expected to be close to target in the coming years," according to the policy statement. This suggests the Riksbank is now on hold. 

The ECB is expected to cut rates by 25 bps tomorrow as growth concerns persist. However, the uptick in inflation into year-end 2024 means the central bank will have to be measured on its forward guidance. Undoubtedly, the threat of U.S. tariffs will be noted.

The U.S. tech sector has stabilized after Monday's rout amid evidence that DeepSeek may achieve its results through distilling. This process allows "developers to obtain better performance on smaller models by using outputs from larger, more capable ones, allowing them to achieve similar results on specific tasks at a much lower cost," according to the FT.

That suggests to me that the large processing and energy-intense models are still needed. I suspect OpenAI and the other big players in the AI sector will find means to prevent distilling, beyond legal recourse. DeepSeek has also raised national security concerns and the Navy has already banned its use.

Trade data released this morning showed the U.S. goods trade deficit surged 18% to a record-wide -$122.1 bln in December as businesses continued to front-load in anticipation of Trump's tariffs. Exports also contracted, adding further to the record deficit.

The trade data resulted in significant negative revisions to GDP estimates. The Atlanta Fed's GDPNow model for Q4'24 plunged nearly a full percentage point to 2.3%, versus 3.2% yesterday. That puts the Atlanta Fed model more in line with the blue chip consensus.

MBA Mortgage Applications fell 2% in the week ended 24-Jan, versus a 0.1% rise in the previous week. Purchases declined 0.4%, while refinancing fell 6.8% as 30-year mortgage rates remained elevated above 7%.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$4.20 (-0.15%)
5-Day Change: +$1.55 (+0.06%)
YTD Range: $2,607.16 - $2,784.96
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +32.54

Gold remains confined to Monday's range as the market awaits today's Fed decision and policy guidance. Ongoing uncertainty as President Trump's policy agenda unfolds is stoking safe-haven interest and should continue to limit the downside.



If the FOMC's guidance is suggestive of a less hawkish bias moving forward, gold could push to new record highs. Today's downward revisions to GDP may give them the cover they need, but I think they will be keen to avoid the appearance of kowtowing to the President's desire for lower rates.

Less hawkish guidance would likely perpetuate the dollar's slightly easier tone, providing an additional tailwind for gold. However, in the wake of today's BoC and Riksbank cuts and tomorrow's anticipated ECB cut, interest rate differentials remain broadly dollar-supportive.

A breach of Monday's high at $2,771.52 would clear the way for another run at the $2,784.96/$2,789.68 highs. Penetration of the latter would bolster the bullish scenario that targets the $2,857.21 Fibonacci level initially, with potential to a measuring objective at $2,936 and the $3,000 psychological barrier.

Today's intraday low at $2,750.09 protects the lows from earlier in the week at $2,735.55/32.23. A retreat below the $2,700 zone would favor further consolidation and raise concerns about the potential double top at $2,784.96/$2,789.68.

Silver jumped to new highs for the week, even though gold remains well contained.  However, price action remains generally confined between the 100-day and 200-day moving averages awaiting the Fed.



A close above the 100-day or below the 200-day is likely to set the near-term tone. Uncertainty about global growth risks and tariff worries are seen as a headwind. However, the softer dollar and persistent haven interest in gold provide some underpinning.


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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