Gold reaches new record above $2,900, dragging silver back above $32

OUTSIDE MARKET DEVELOPMENTS: President Trump is expected to announce 25% tariffs on all steel and aluminum imports this week. Trump also pledged reciprocal tariffs on countries that already have levies on U.S. goods. "Very simply it's if they charge us, we charge them," he said.

The latest round of tariff threats has trade war concerns back on the rise after they moderated somewhat last week. Risk appetite is fairly balanced to start the week.

Markets were rattled on Friday by a full percentage point surge in year-ahead consumer inflation expectations to a 15-month high of 4.3%. The barrage of headlines in recent months about what's going to cost more due to Trump's trade policies understandably has consumers worried.

The New York Fed's survey of consumer inflation expectations was not as hot as the University of Michigan's reading. Nonetheless, the NY Fed survey reflects a worry that inflation will remain sticky near 3% out to the five-year horizon.

"Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—was unchanged at the one-year horizon, declined at the three-year horizon, and increased at the five-year horizon," according to the NY Fed's SCE.

The trade will be watching this week's U.S. inflation data for signs that prices are indeed heating up. January CPI (Wednesday) and PPI (Thursday) are both expected to show increases of 0.3%. Import/Export prices are out on Friday and the market is anticipating +04% and +0.3% respectively.

Despite the headline NFP miss, Friday's jobs data suggests the U.S. economy continues to hum along thanks to positive back-month revisions and a downtick in the jobless rate to an eight-month low of 4%.

As a result, Fed funds futures now don't show the next 25 bps rate cut fully priced in until September. Fed Chairman Powell will be on Capitol Hill this week for his semiannual testimony to lawmakers amid pressure from President Trump for more accommodative monetary policy.

Aside from the NY Fed SCE, today's U.S. economic calendar is empty.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$43.23 (+1.51%)
5-Day Change: +$90.10 (+3.20%)
YTD Range: $2,607.16 - $2,910.37
52-Week Range: $1,986.16 - $2,910.37
Weighted Alpha: +42.40

Gold has reached new all-time highs above $2,900. The yellow metal has set record highs in seven of the last eight sessions, with last Thursday the lone exception.



Arguably the trade has become quite crowded and Thursday's modest setback did little to relieve the developing overbought condition. While today's RSI reading of 78 is the highest since April, the indicator reached a high of 85 before we saw a meaningful correction.

Today's gains lend further credence to the next upside targets at $2,943.10 (Fibonacci), $2,936.00 (measuring), and $3,000.00 (psychological). Today's intraday and all-time high at $2,910.37 marks first resistance.

Net global ETF inflows totaled 17.7 tonnes in the week ended 31-Jan. European investors led the charge for a third straight week as growth risks and dovish monetary policy expectations continue to weigh on the euro. A more than 2% gain in gold last week, likely sparked additional inflows.

 

The CFTC's COT report showed that net speculative long positions rose 3.1k to a 19-week high of 302.5k contracts in the week ended 7-Feb, versus 299.4k in the previous week.

CFTC Silver speculative net positions
 

News last week indicated China will allow insurance funds to invest up to 1% of their assets in gold. According to a Bloomberg article, that would equate to a potential inflow of ¥200 bln ($27.4 bln) into the gold market, providing a new source of demand.

China is already a gold-centric country so a 1% allocation is quite conservative. If this pilot program is successful China could increase that threshold. It is widely believed that a 2-10% allocation is optimal and can improve returns in a well-diversified portfolio over time.

Overall gold demand hit a record high in 2024. "Total gold demand (including OTC investment) rose 1% y/y in Q4 to reach a new quarterly high and contribute to a record annual total of 4,974t," said the World Gold Council in its latest Gold Demand Trends report.

"Central banks continued to hoover up gold at an eye-watering pace," said the WGC. Official sector buying exceeded 1,000 tonnes for the third straight year with a notable acceleration in Q4'24.

The flow of gold from global bullion centers to Comex vaults on tariff uncertainty continues to garner a lot of attention. "Gold stored in London's professional bullion vaults fell by 151 tonnes in January," according to Adrian Ash of BullionVault. "Comex warehouses today hold over 4 years of total US jewellery, industrial, coin and small-bar demand," wrote Ash.

Today's low from early U.S. trading at $2,898.16 marks initial support and protects today's Asian low at $2,860.70. Short-term dips will likely continue to be viewed as buying opportunities.

Silver is back above $32 after Friday's soft close raised some concerns about the six-week uptrend. While continued records in gold provide underpinnings for the white metals, global trade, and growth concerns remain headwinds.



The breach of the 61.8% retracement level of the decline off October's high at $34.853 was a bullish technical signal on Friday, but that was tempered by the fade below $32 into the close. Fresh 14-week highs above $32.590 would likely reinvigorate the bull camp.

Such a move would bode well for a push above $33 and a challenge of the next Fibonacci level at $33.554 (78.6% retrace of the decline from $34.853 to $28.783). Above the latter, the cycle high at $34.853 would very much be back in play.

I'm inclined to continue leaning cautiously bullish as long as silver remains above its 100-day moving average. That indicator comes in at $31.179 today. Adding significance to this support is the fact that the 20-week MA is right there as well. The rising 20-day MA will correspond by midweek.

If silver closes below these important moving averages, a dive back below $31 would be likely, with potential to the 3-Feb low at $30.763. That would also signal more consolidation in the lower half of the well-defined range. 

The COT report for last week revealed that net speculative long positions jumped 6k to 50.4k contracts, versus 44.4k in the previous week. It was the first >50k reading in  13 weeks.

CFTC Silver speculative net positions

Like the gold market, the silver market is also experiencing dislocation. Adrian Ash of Bullion Vault reported last week that the one-month lease rate was 7%, well above what the market is accustomed to. The contango between March futures and spot remains elevated at more than 40¢, although it's been as big as $1 in recent weeks.

Rumblings of a potential silver squeeze have been steady background noise for decades. However, that chatter seems to be intensifying amid ever-growing demand and a persistent supply deficit 


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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