Gold surges to new record on heightened inflation and trade worries, silver retreats below $32

OUTSIDE MARKET DEVELOPMENTS: While January payrolls missed expectations, there were significant back-month revisions and the unemployment rate ticked down to 4%. The market has broadly interpreted the jobs data as solid and reflective of a robust U.S. economy.

Fed funds futures have pushed the likelihood of the next Fed rate cut to September. The implied Fed funds rate for December is 3.975%, suggesting the market now believes there will be just one rate cut this year.

The more hawkish Fed outlook, a surprising drop in consumer sentiment, and a surge in inflation fears are all contributing to risk-off sentiment. All the major U.S. stock indexes are under pressure and the VIX is up more than 3%.

The University of Michigan's year-ahead inflation expectations surged to a 15-month high of 4.3% in February from 3.3% in January due to tariff worries. "This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations," according to survey director Janet Hsu.

It was the second straight "unusually large" increase amid ceaseless reporting on what's going to cost more as a result of Trump's trade policies. It's not surprising that consumers are rattled.

Despite the delay of tariffs on Mexico and Canada, worries about a potential trade war remain high. Tariffs on China have been implemented and they have responded with tariffs of their own. Europe is worried that they are now in the crosshairs, as is every country that carries a trade surplus with the U.S.

Nonfarm Payrolls rose 143k in January, below expectations of +165k, versus an upward revised +307k in December (was +256k).  The unemployment rate ticked down to 4% on expectations of 4.1%, versus 4.1% in December. Hourly earnings rose 0.5%, above expectations of +0.3%, versus +0.3% in December. The average workweek fell to 34.1 hours, the lowest since March 2020. Weather and the LA fires may have contributed to the drop.

Michigan Sentiment (prelim) unexpectedly tumbled to a seven-month low of 67.8 in February, below expectations of 71.5, versus 71.1 in January. One-year inflation expectations rose a full percentage point to a 15-month high of 4.3%.

Wholesale Sales rose 1.0% in December, above expectations of +0.7%, versus a positive revised +0.9% in November (was +0.6%). Inventories fell 0.5% in line with expectations, versus -0.1% in November. The inventory-sales ratio dropped to 30-month 1.31. The net impact on Q4 GDP should be positive.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$11.29 (+0.40%)
5-Day Change: +$64.46 (+2.30%)
YTD Range: $2,607.16 - $2,880.41
52-Week Range: $1,986.16 - $2,880.41
Weighted Alpha: +39.78

Gold surged to a new record high in early U.S. trading on Friday, buoyed by ongoing haven interest and increased inflation worries. It was the seventh record high out of the last eight sessions. The yellow metal also appears poised for its sixth consecutive higher weekly close.



The yellow metal is also garnering support from news released today that showed China's PBoC added gold to reserves in January. It was the third straight monthly increase, fortifying the belief that a new buying trend is underway after last year's six-month pause.

Additionally, China's National Financial Regulatory Administration announced a pilot program that would allow insurance funds to invest in gold. Increased institutional demand provides yet another tailwind for gold and could stoke more broad-based buying – including jewelry – in the world's largest gold-consuming nation, regardless of record-high prices.

Furthermore, despite more hawkish Fed expectations and a retreat in Treasuries, the dollar remains fairly subdued. While the dollar index is higher on the day, it remains in the lower half of this week's range.

At Thursday's policy decision presser, BoE Deputy Governor Ramsden responded to a question about the gold outflow from the central bank's vaults. He acknowledged that all of the available delivery slots are booked, and any new requests will have to wait longer. However, he classified the process as “very orderly.”

Ramsden noted that as gold is a physical asset there are "real logistical constraints," including security constraints. "The stuff is also quite heavy," he said, which got a chuckle from the press corp.

Upside targets at $2.936.00 (measuring) $2,943.10 (Fibonacci), and $3,000 (psychological) remain valid. Today's intraday and all-time high at $2,885.75 provides an intervening barrier.

The intraday retreat from today's record high is seen as profit-taking ahead of the weekend.  First support at $2,855.32 protects more substantial support marked by the lows from Wednesday and Thursday at $2,740.60/$2,739.69. Below the latter, the $2,800 zone and the old highs at $2,789.68/$2,784.96 are highlighted.

Silver eked out a new high for the week at $32.590 before succumbing to intraday selling pressure. While the white metal still seems like to notch a third straight higher weekly close, it appears like a second consecutive lower daily close is in the offing.



Global trade and growth worries continue to be a headwind for silver, which derives the majority of demand from industry. A close below $32 to end the week would be a concern for the bull camp, suggesting potential back to Tuesday's low at $31.40. Below that, the 100-day moving average at $31.166 and Monday's low at $30.763 would be back in play.

Ongoing strength in gold perhaps generated some spillover haven buying in silver this week, but that was overwhelmed today by souring consumer sentiment. The $32.530/590 level now provides a good upside barrier ahead of the $32.657/700 chart point and the next Fibonacci level at $33.554.

I'd like to see the 100-day moving average hold on the downside and $32 regained on a close basis to reinstill some degree of confidence in the bullish scenario that emerged this week.


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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