Gold and silver recover from last week's sell-offs on revived geopolitical tensions, softer dollar

OUTSIDE MARKET DEVELOPMENTS: Hopes for a speedy end to the war in Ukraine were dealt a blow after Friday's Oval Office meeting between Ukrainian President Zelensky and President Trump turned confrontational. Zelensky was asked to leave the White House at the direction of President Trump and return when he was ready for peace.

"Of course, we understand the importance of America, and we are grateful for all the support we’ve received from the United States. There has not been a day when we haven’t felt gratitude," Zelensky said on Sunday in an effort to smooth things over.

European leaders rallied around Zelensky over the weekend and are now taking the lead on negotiating a ceasefire. "This is not a moment for more talk. It’s time to act,” said UK PM Keir Starmer.

Having Europe take a more prominent role in negotiations is arguably desirable. However, there is broad acknowledgment that any deal would still require the support of the U.S.

Last week, Trump said he would implement 25% tariffs on Canada and Mexico on Tuesday as promised. China will incur additional 10% duties as the U.S. seeks to curtail the flow of illegal drugs.

While the Fed's favored measure of inflation cooled slightly in January, consumers cut spending by the most in four years. Sticky inflation, weather, and a more general decline in consumer confidence were contributing factors.

Fed funds futures now project that the next rate cut will happen in June. Two such cuts are anticipated by year end.

Friday's nonfarm payrolls report will be a focus this week and may provide some clarity on Fed policy. Median expectations are +160k jobs.

S&P Global Manufacturing PMI was revised up to a 31-month high of 52.7 in February from an initial print of 51.6 versus 51.2 in January. Input cost and selling price inflation accelerated.

Manufacturing ISM fell 0.6 points to 50.3 in February, below expectations of 50.4, versus 50.9 in January. The streak of monthly increases ends at four. Prices paid surged 7.5 points to 62.4 from 54.9 in January.

Construction Spending slipped 0.2% in January, below expectations of -0.1%, versus +0.5% in December.

Domestic Auto and Light Truck Sales for February will be out later today. Expectations are +1.9M and +10.1M, respectively.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$16.22 (+0.57%)
5-Day Change: -$78.64 (-2.66%)
YTD Range: $2,607.16 - $2,955.40
52-Week Range: $2,079.74 - $2,955.40
Weighted Alpha: +31.17

Gold starts the week on the bid, buoyed by revived geopolitical risks and more dovish Fed bets. A weaker dollar is providing additional support.



The halfway back point of last week's decline comes in at $2,895.32 and is bolstered by the still rising 20-day MA at $2,900.18. A convincing climb back above $2900 would return credence to the underlying uptrend and initially shift focus to the 61.8% retracement level at $2,909.50.

Beyond the latter, watch $2,929.68 (78.6% retrace) and last week's record high at $2.955.40. Losses from that high were considered corrective, and the $3,000 remains a valid upside objective.

However, the weekly key reversal confirmed on Friday remains a troubling technical feature for the bull camp. We could see at least one more go at the downside.

The 50% retracement level of the rebound from Friday's low comes in at $2,863.68. This level is bolstered by a minor chart point at $2,860.36 and protects the overseas low at $2,857.67. Below that, $2,835.23 and the $2,800 zone would be back in play. 

The COT report for last week revealed a decline of 7.1k in net speculative long positions to 261.6k contracts versus 268.7k in the previous week. It was the third consecutive weekly decline in spec longs.

Silver has rebounded more than 2%, stoked by gold's bounce and a weaker dollar. The white metal plunged 4% last week.  It was the first lower weekly close in six.

 

Broadly firmer manufacturing PMIs are also helping silver's recovery today. "We see room for larger gains in silver as the gold rally consolidates and global industrial production signals a modest recovery," UBS said in a note. Copper got a boost as well.

The SLV ETF saw modest inflows last week. However, the COT report showed net speculative long positions fell by 1.6k to 52.9k contracts, versus 54.5k in the previous week.

CFTC Silver speculative net positions

The inability of silver to sustain losses below the 100-day moving averages is somewhat encouraging. However, it would take a rebound above $32 to ease short-term pressure on the downside. The 20-day moving average comes in at $32.132 to start the week.

If today's rebound in gold proves to be just a brief reprieve, further tests below $31 will have to be considered. With more than 50% of the rally from $28.783 to $33.340 already retraced, the $30.525/516 level (61.8% retrace, 200-day) may still be an attraction.


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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