Gold retreats into the range after yet another record high, silver defensive below $32

OUTSIDE MARKET DEVELOPMENTS: Global trade tensions continue to ratchet higher as Europe vowed retaliation against U.S. tariffs announced yesterday against steel and aluminum. “Unjustified tariffs on the EU will not go unanswered — they will trigger firm and proportionate countermeasures,” said EU President Ursula von der Leyen.

The EU has faced sluggish sub-1% growth for the last two years. Germany is the block's largest economy and its biggest steel exporter. The German economy is already in recession and contracted in 2023 and 2024. The country is also in the midst of a political upheaval with elections slated for later this month.

A trade war with the U.S. does not bode well for an already weakened Germany or the EU as a whole. "Trade wars always cost both sides prosperity,” warned German Chancellor Olaf Scholz. Europe struck a tariff reduction agreement with Trump 45 late in his first term, suggesting that a trade deal between Washington and Brussels is not out of the question.

Fed Chairman Powell testified before the Senate Banking Committee today. He reiterated the message from the last FOMC meeting that the central bank is in no hurry to ease further. “With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said.

Recent FedSpeak has towed that line as well. Citing solid growth last year, a 4% unemployment rate, and above-target inflation Cleveland Fed President Beth Hammack is also inclined to be patient. “It will likely be appropriate to hold the funds rate steady for some time,” she said.

Expectations for the next 25 bps Fed rate cut were pushed out to September late last week after a generally favorable January jobs report. Heightened consumer worries about inflation contributed as well, so the trade will be paying close attention to this week's release of CPI and PPI data.

NFIB Small Business Optimism Index fell 2.3 points to 102.8 in January, below expectations of 104.6, versus 105.1 in December. "Overall, small business owners remain optimistic regarding future business conditions, but uncertainty is on the rise." said NFIB Chief Economist Bill Dunkelberg.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$3.54 (-0.12%)
5-Day Change: +$64.63 (+2.27%)
YTD Range: $2,607.16 - $2,940.10
52-Week Range: $1,986.16 - $2,940.10
Weighted Alpha: +42.54

Gold set another new record high at $2,940.10 in overseas trading before retreating into the range. The yellow metal has now set all-time highs in eight out of the last nine sessions as global trade tensions continue to percolate.



The move into the targeted $2,936.00/$2,943.10 zone prompted some profit-taking. While the intraday setback was more than  $50, much of that has already been retraced. Gold is currently trading just below the midpoint of today's range.

As noted in recent commentary, the gold market has become overbought. I remain decisively bullish, but a multi-session corrective/consolidative phase can not ruled out. Fresh intraday lows below $2,884.96 would shift focus to the lows from the previous two sessions at $2,860.70/$2,855.32. Beyond the latter, $2,840.60/$2,839.69 would be in play.

I expect haven interest to perpetuate the dominant uptrend. Voracious central bank gold buying is likely to continue this year as well. The WGC noted an acceleration in official sector demand in Q4'24 suggesting another year of 1,000+ tonne demand may be in the offing.

Despite dollar-favorable interest rate differentials, the greenback remains fairly well contained off the multi-year highs set in January. While I would still categorize the dollar as relatively strong, recent range trading has diminished the headwind for gold.

Our friends at Sprott Money wonder if the U.S. is getting ready to monetize its gold reserves. In discussing President Trump's plan to create a U.S. sovereign wealth fund, Treasury Secretary Bessent said, "We're going to monetize the asset side of the U.S. balance sheet for the American people."

Our 8,134 metric tons of gold reserves are a pretty significant chunk of that balance sheet. Interestingly, our gold reserves are currently valued at a mere $42.22 per ounce.

That price is the fixed statutory price from 1973 and is used for official accounting purposes, resulting in a book value of just over $11 bln. It has never been clear to me why that price hasn't been adjusted periodically over the last 52 years. 

If Treasury were to revalue U.S. gold holdings by marking them to the current market price, instantly that asset would have a book value of $758 bln. But to what end?

Any indication that the U.S. was contemplating selling reserves would be an extraordinarily bearish turn of events. That seems unlikely as even revalued gold reserves would only equate to 2% of the total national debt $36.5 trillion. It wouldn't even make a dent.

Other countries would probably be eager to snap up U.S. gold, particularly if prices fell dramatically. This could hasten ongoing dedollarization efforts and would not be in the best interest of the United States.

Again this is all speculation, but a more likely scenario might be movement toward a new gold standard. "Some think it will be an issuance of the sort of gold-backed treasuries that are favored by Trump's onetime Fed Governor nominee Judy Shelton," according to the Sprott post.

Could this have something to do with the massive movement of gold to the U.S.? Interesting fodder for conversation to be sure!

A rebound above that midpoint of today's range at $2,912.53 would bode well for further tests of the upside. A breach of $2,940.10/43.10 would clear the way for the much-anticipated challenge of $3,000. Above that, $3,037.94 (200% retracement of the decline from $2,789.68 to $2,541.42) would attract.

Silver didn't get much help from the latest round of record highs in gold. Rising trade war concerns are stoking global growth risks and worries about industrial demand destruction. This outweighs the haven appeal of the white metal as a less expensive alternative to gold.



Silver dropped to a six-session low of $31.334. However, the important support zone highlighted by the 20-day, 100-day, and 20-week moving averages at $31.186/178 was left unmolested.

A close back above $32 today would keep hope alive for the bull camp, favoring tests of the highs from the last two sessions at $32.212  and $32.320. A breach of last week's high at $32,590 is needed to return focus to $33.000/066 and the next Fibonacci level at $33.554.

If silver closes below the important moving averages, a deeper retreat below $31 would be likely, with potential to the 3-Feb low at $30.763. While I don't think the lows from December at $28.802/783 are in jeopardy, more consolidation in the lower half of the well-defined $34.853/$28.783 range could be in the offing. 


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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