Gold remains within sight of record highs helping underpin silver above $32

OUTSIDE MARKET DEVELOPMENTS: Incoming data continue to show that inflation accelerated in January. Both CPI and PPI came in hotter than expected this week.

Testifying on The Hill earlier in the week, Fed Chairman Powell acknowledged that there was more work to do on the inflation front but didn't seem too worried. "We don't get excited about one or two good readings, and we don't get excited about one or two bad readings," he said.

Powell went on to say that the Fed wants to keep policy "restrictive for now." That drove Treasury yields higher and stocks fell. Fed funds futures are now predicting a single 25 bps rate cut this year, which likely won't happen until October or December.

The dollar has had a muted response to the recent rise in yields as trade war fears stoke growth risks and outweigh the normal support higher interest rates would provide. The dollar index slipped to a new low for the week, but the lows from the last two weeks at 107.30 and 106.97 remain protected.

Exporters of steel and aluminum to the U.S. are formulating their responses to the latest tariffs that could further inflame trade war worries. Several countries are lobbying for exemptions, but President Trump has vowed "no exceptions."

Hamas has capitulated and will release additional Israeli hostages on Saturday as originally planned following threats from Israel and President Trump. Hamas had said they were indefinitely delaying further hostage releases after accusing Israel of ceasefire violations.

President Trump announced yesterday that he and Russian President Putin discussed ending the war in Ukraine, generating cautious optimism on the geopolitical front. President Zelensky of Ukraine confirmed Trump had shared details of the conversation with him. 

"No one wants peace more than Ukraine. Together with the U.S., we are charting our next steps to stop Russian aggression and ensure a lasting, reliable peace. As President Trump said, let’s get it done,” said Zelensky.

 PPI rose 0.4% in January, above expectations of +0.3%, versus an upward revised +0.5 in December (was +0.2%); +3.5% y/y, steady from December, although last month was revised higher from 3.3%. Core +0.3% in line with expectations, although December was revised sharply higher to +0.5% from UNCH; 3.6% y/y, above expectations of 3.2%, versus an upward revised 3.7% in December (was 3.5%).

Initial Jobless Claims fell 7k to 213k in the week ended 8-Feb, below expectations of 220k, versus a revised 220k in the previous week. Continuing claims fell 36k to 1,850k in the 1-Feb week, below expectations of 1,880k, versus 1,886k in the previous week.  


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$13.83 (+0.48%)
5-Day Change: +$57.37 (+2.01%)
YTD Range: $2,607.16 - $2,940.10
52-Week Range: $1,986.16 - $2,940.10
Weighted Alpha: +43.03

Gold remains generally well bid within sight of the all-time high set on Tuesday at $2,940.10, underpinned by rising trade tensions. The softer dollar is helping the yellow metal's cause as well.



Downticks from Tuesday's high attracted buying interest and gold has only notched nine lower closes since the beginning of the year. That's a pretty impressive record and suggests the uptrend is healthy and likely to continue.

A breach of chart/Fibonacci resistance at $2,940.10/$2,943.10 would clear the way for the much-anticipated challenge of $3,000. Beyond the latter, the next Fibonacci level comes in at $3,037.94 (200% retracement of the decline from $2,789.68 to $2,541.42).

India overtook China as the world's largest consumer of gold in 2024. However, record-high prices are putting a serious damper ahead of the Indian wedding season.

"Right now, jewellery demand has taken a big hit — it's down by 70-80%. Jewellers all over the country are seeing slow sales," said Surendra Mehta, secretary at the India Bullion and Jewellers Association in a Reuters article.

The market dislocation stemming from massive physical gold flows to the U.S. in a move to avoid potential tariffs and to capitalize on the outsized contango on Comex is also impacting the Indian market. Indian gold production averages a minuscule two tonnes per year, while demand last year was 800 tonnes.

Indian banks borrow gold in global market centers and lend it to local jewelers. Skyrocketing lease rates in London caused lease rates in India to double putting additional upward pressure on jewelry costs.

According to the WGC, global jewelry demand accounts for about 40% of total demand. Weaker jewelry demand could provide a headwind for gold if not offset by stronger investment demand.

Initial support is at $2,901.83/$2,900.00 and a minor level at $2,884.96 protect yesterday's low at $2,869.08. More significant supports are noted at $2,860.70/$2,855.32 and $2,840.60/$2,839.69. 

Silver edged to a new high for the week before retreating into the range as tariff and growth risks continue to limit the upside. Ongoing strength in gold and a soft dollar are providing support.

 

With important moving averages at $31.320/201/191 intact, I remain cautiously bullish. New highs for the year above $32.590 would favor a push above $33.

The next Fibonacci level is at $33.554 (78.6% retrace of the decline from $34.853 to $28.783) and must be exceeded to bolster confidence in the longer-term uptrend.

A retreat below $32 would favor further consolidation with scope for another run at the moving averages. Tuesday's low at $31.334 further bolsters this support zone.


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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