Gold sets new record highs, while silver cleared $31 to reach 7-week highs

OUTSIDE MARKET DEVELOPMENTS: The ECB eased by an additional 25 bps today. The decision was unanimous and widely expected. It was the fifth cut since June for a total of 175 bps.

"The disinflation process is well on track," according to the statement and the ECB foresees the 2% target being achieved "in the course of this year." However, there was an acknowledgment that "the economy is still facing headwinds," which suggests more cuts are in the offing.

"The risks to economic growth remain tilted to the downside. Greater friction in global trade could weigh on euro area growth by... weakening the global economy," said ECB President Christine Lagarde during her press conference.

Today's ECB action comes on the heels of yesterday's Fed decision to hold steady on rates. The FOMC noted, "economic activity has continued to expand at a solid pace." The committee continues to see inflation as "somewhat elevated."

The line that said "inflation has made progress toward the Committee's 2 percent objective" was struck from the statement, prompting the market to interpret the Fed's decision as a hawkish pause. Fed funds futures continue to suggest the next cut won't come until midyear. Clearly, this is not what President Trump was hoping for.

Chairman Powell said he has not had any contact with the President thus far and would not comment on Trump's call for rate cuts. “I'm not going to have any response or comment whatsoever on what the president said. It's not appropriate,” Powell said.

President Trump almost immediately took a swipe at Powell and the Fed via TruthSpocial:

The market now looks ahead to next week's Bank of England monetary policy decision. The BoE is widely expected to ease by 25 bps.

The trade will also be paying close attention to tomorrow's PCE data, particularly the chain price index which is the Fed's preferred measure of inflation. Median expectations favor a 0.3% rise.

Q4 GDP (Advance) moderated to a 2.3% pace, below expectations of 2.7%, versus 3.1 in Q3. The imbalance in trade into year-end was a drag on growth, but solid consumption provided a bit of an offset.

Initial Jobless Claims fell 16k to 207k in the week ended 25-Jan, below expectations of 220k, versus 223k in the previous week. Continuing claims tumbled 42k to 1,858k in the 18-Jan week, versus a three-year high of 1,900k in the previous week.

Pending Home Sales Index fell 5.5% to 74.2 in December on expectations of unch, versus a negative revised 78.5 in November. It was the first m/m decline since July. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$18.50 (+0.67%)
5-Day Change: +$27.94 (+1.01%)
YTD Range: $2,607.16 - $2,797.07
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +34.18

Gold has pushed to new all-time highs, helped by a softer dollar and ongoing uncertainty about President Trump's trade policies. The corrective/consolidative phase that has dominated since the previous record high was established at $2,789.68 on 30-Oct is over.



This move had been anticipated since the upper boundary of the symmetrical triangle pattern was cleared on 10-Jan. A measuring objective off of that chart pattern now projects to $2,936.00. An intervening target is marked by the $2,857.21 Fibonacci level (127.2% retracement of the decline from $2,789.68 to $2,541.42). The $3,000 level remains an attraction as well.

While the Fed appears to be on hold until June or July and interest rate differentials remain dollar favorable, growth weakness into year-end has given dollar bulls pause. The dollar index remains more than 2% off the 110.18 high set on 13-Jan.

Tariff concerns prompted a massive transfer of physical metal from London to COMEX vaults. "Over the last two months, 12.2 million troy ounces of gold were delivered to COMEX-approved warehouses, raising stocks there by 70% to 29.8 million ounces, the highest since August 2022," according to a Reuters article.

This leaves loco London stocks significantly depleted and the lack of liquidity is contributing to the bid in gold. The market has turned to the BoE as a source of leased supply.

The one-month lease rate remains elevated above 3% and deliveries from the BoE are now taking weeks, when the norm had been less than a week previously. “The key with the BoE is that they are not a commercial vault so not prepared to handle the onslaught of gold borrowing banks are requesting from the central banks,” said an industry expert quoted in the Reuters piece.

While gold seems an unlikely target for tariffs, the bullion banks remain concerned. Market dislocation seems likely to continue for some time.

A minor chart point at $2,765.72/64.78 stands in front of today's intraday low at $2,758.79. The low for the week from Monday at $2,732.23 is considered well-protected.

Weakness in Asian jewelry demand provides a bit of a headwind. Chinese jewelry giant Chow Tai Fook reported a 14.2% y/y drop in Q4 sales. Near-record prices likely tempered demand into yesterday's Lunar New Year.     

Silver led the way higher today, surging to new seven-week highs above $31. I had been anticipating that new record highs in gold would drag silver above $31, but it was the other way around today.

 

Nonetheless, I do see gold's strength on haven interest as helping to underpin the white metal which is still more than 9% off the October cycle high and nearly 37% off the all-time high.

The technical picture has certainly improved today and a close above the 100-day moving average will lend significance to today's move higher. The last time silver closed above the 100-day was on 13-Dec.

My position has been that $32 must be regained to confirm a more bullish near-term tone within the range. With an intraday high of $31.712, the $32 threshold can be considered within striking distance.

A move above $32 would put silver convincingly within the upper half of the $34.853/$28.783 range, shifting focus to the 61.8% retracement level at $32.534.

However, global growth risks – including recent indications of U.S. slowing – and tariff concerns will continue to pose headwinds for industrial metals like silver. Failure to sustain the move above the 100-day MA would call for further consolidation in the lower half of the range.


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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