Gold rebounds to trade higher after inflation beat as silver straddles $32

OUTSIDE MARKET DEVELOPMENTS: President Trump reports he had a "highly productive" phone call with Vladimir Putin. "We each talked about the strengths of our respective Nations, and the great benefit that we will someday have in working together. But first, as we both agreed, we want to stop the millions of deaths taking place in the War with Russia/Ukraine," wrote Trump.

"We have also agreed to have our respective teams start negotiations immediately." Trump indicated his next step was to call Ukrainian President Zelenskyy.

The prospect of meaningful negotiations to end the war in Ukraine dials down global geopolitical risks and will likely stoke risk appetite.

Consumer inflation heated up in January, reinforcing the Fed's decision to pause its easing campaign last month. CPI accelerated to 3.0% y/y in January, the highest since June. Core CPI rose to 3.3%.

Fed funds futures pushed expectations for the next rate cut out to December. Chairman Powell will be back on the Hill today, providing testimony before the House Financial Services Committee. Look for Powell to reiterate that the Fed is in "no hurry" to adjust its policy stance.

Dimming easing expectations have pushed Treasury yields higher. The 10-year yield is pressuring four-week highs at 4.664%. However, the dollar remains well contained within its recent range.

Trump 45 appointed Powell as Fed Chair in 2018, but the two have had a contentious relationship. Trump blustered shortly after the last FOMC meeting that he would "demand" lower rates, seemingly in disregard of the inflation implications. He subsequently walked that back, saying that holding rates steady in January "was the right thing to do."

Treasury Secretary Bessent has indicated he and the President are more focused on lowering longer-term borrowing costs. "He and I are focused on the 10-year Treasury," Bessent said during a recent Fox Business interview.

Former Texas Congressman, Fed nemesis, and gold standard advocate Ron Paul has been floated as a potential Powell replacement. Powell has pledged to serve out his term, which ends in May of 2026. Ron Paul would be nearly 91 years old by then.

Paul was awesome at questioning Fed chairs during the semiannual Humphrey-Hawkins testimony. He wrote a book called End the Fed in 2009.

At 89, Paul is still sharp as a tack, but I doubt he is a serious contender for Fed chair. 

Amid simmering trade war concerns, Republican Mitch McConnell has written an op-ed in Louisville’s Courier-Journal critical of the President's trade policies. "Tariffs are bad policy," he unequivocally stated. “Blanket tariffs make it more expensive to do business in America, driving up costs for consumers across the board,” he wrote.

Despite the pushback from within his party, the Trump administration is moving forward with reciprocal tariffs that charge duties on U.S. goods. Markets remain on edge amid concerns that a trade war will drive up prices and sapp growth.

MBA Mortgage Applications rose 2.3% in the week ended 7-Feb, versus +2.2% in the previous week. 30-year mortgaged rates edged lower to 6.95% from 6.97% in the previous week and a 36-week high of 7.09% in the 10-Jan week. 

CPI rose 0.5% in January, above expectations of +0.3%, versus +0.4% in December; 3.0% y/y, versus 2.9% in December. Core +0.4%, above expectations of +0.3%, versus +0.2%; 3.3% y/y, versus 3.2% in December.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$18.60 (-0.64%)
5-Day Change: +$36.53 (+1.27%)
YTD Range: $2,607.16 - $2,940.10
52-Week Range: $1,986.16 - $2,910.37
Weighted Alpha: +42.34

Gold extended losses in reaction to this morning's CPI beat as the prospects for the next Fed rate cut got pushed further into the future. However, the market seemed to quickly realize that the yellow metal is the classic hedge against inflation and that tariff worries remain prevalent. Buyers stepped in and drove the yellow metal back above $2,900.



Another Fed rate cut is not fully priced in until December at this point. Meanwhile, Fed Chairman Powell was on The Hill this week reiterating to Congress that the central bank is in no hurry to adjust rates further.

U.S. yields have risen, but the dollar remains subdued. The dollar index is consolidating about 2% off the more than two-year high set in mid-January. The soft dollar is counterbalancing the higher yields and helping to limit the downside in gold.

A breach of minor resistance at $2,910.37/$2,912.97 would bode well for a retest of the record high established on Tuesday at $2,940.10. That high is bolstered by a Fibonacci level at $2,943.10. Beyond that, $3,000 and the next Fibonacci level at $3,037.94 would attract.

Noting the moderation of the contango between spot gold and front-month futures, the World Gold Council's John Reade suggests the market dislocation that developed as a result of tariff concerns is "nearing an end." However, as of yesterday, Comex inflows continue to rise parabolically. 

Some worry that lease rates will remain elevated for months. At this point, OTC market carry charges aren't showing signs of returning to more normal levels.

While the unwinding of the pandemic-related surge in Comex gold stocks was fairly orderly, it's anyone's guess how things might unfold this time around.

The retreat from yesterday's record high has done little to relieve the overbought condition, which could be a short-term limiting factor. Today's earlier low at $2,869.08 now provides an intervening barrier ahead of supports mentioned in yesterday's commentary at $2,860.70/$2,855.32 and $2,840.60/$2,839.69. 

Silver continues to straddle the $32 level perhaps getting a boost from heightened risk appetite amid hopes for a negotiated peace in Ukraine. The limited nature of gold's correction thus far, and a soft dollar provide additional underpinning.



A move to new 14-week highs above $32.590 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 look increasingly attractive.

On the downside, yesterday's low at $31.334 reinforces the more important $31.254/201/196 support zone where the 20-day, 100-day, and 20-week moving averages converge. A break and close below those MAs would favor a dive back below $31 and consolidation at the low end 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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