Gold and silver continue to recover from last week's retreat

OUTSIDE MARKET DEVELOPMENTS: President Trump spent nearly 100 minutes outlining his second-term vision last evening, declaring that "America is back." It was the longest joint address or State of the Union ever delivered.

The President touted the plunge in illegal border crossings to record lows as well as successes in rooting out waste, fraud, and abuse within the federal government. He also reiterated his vow to beat inflation by first driving down energy prices.

"We have accomplished more in 43 days than most administrations accomplished in four years or eight years, and we are just getting started," he said.

Trump confirmed that he had received a conciliatory letter from Ukrainian President Zelensky expressing a desire to "come to the negotiating table as soon as possible to bring lasting peace closer." This dials down geopolitical tensions that spiked after Zelensky was dismissed from the White House after a terse meeting with Trump on Friday.

There was also revived optimism on the trade front just a day after the Trump administration imposed tariffs on its largest trading partners. Commerce Secretary Howard Lutnick hinted that a deal with Mexico and Canada could happen as soon as Thursday.

Trump still plans to proceed with reciprocal tariffs in April. "Whatever they tax us, we tax them," he explained in last night's address.

It is becoming increasingly clear that the President's actions are designed to drive America's trading partners to the bargaining table. Having the world's largest consumer market is a pretty effective cudgel.

Revived optimism on trade and a peace deal between Russia and Ukraine also rusucitated risk appetite.

Today's services sector beats and solid factory orders in January provide some counterbalance to weakness in the manufacturing sector seen earlier in the week. However, recent incoming data have generally called into question the resilience of the U.S. economy, leading to downward revisions to Q1 GDP expectations.

Much weaker than expected private sector jobs growth in February suggests economic weakness may now be hitting the labor market. This has led to whispers of a possible NFP miss on Friday. The market is expecting a payrolls increase of 160k.

These concerns are eclipsing worries about revived inflation and fostering more dovish monetary policy leanings. This has helped push the dollar index to four-month lows.

Fed funds futures suggest the next Fed rate cut will happen in June and have nearly priced in three 25 bps cuts by year end. It was just a matter of weeks ago that the market foresaw a single 25 bps cut late in the year.

The ECB is widely expected to trim rates by 25 bps when they announce policy tomorrow. While inflationary pressures have continued to ease, Germany's newly proposed €500 bln spending package could give the central bank pause.

Germany's new ruling party is seeking to remove fiscal constraints and unleash a massive spending blitz on infrastructure and defense. Arguably, this too is a win for President Trump, who has been calling for greater defense spending from other NATO members since his first term.

“In view of the threats to our freedom and peace on our continent, whatever it takes must now also apply to our defense,” said Friedrich Merz, leader of the CDU/CSU coalition. Euro gains contributed to weakness in the dollar.

MBA Mortgage Applications jumped 20.4% in the week ended 28-Feb, versus -6.4% in the previous week. Purchases rose 9.1%, while refis surged 37%. The 30-year mortgage rate fell to 6.73% from 6.88%.

ADP Employment Survey revealed a 77k rise in private payrolls in February, well below expectations of +139k, versus an upward revised +186k in January (was +183k). ADP noted "hiring hesitancy among employers as they assess the economic climate ahead.

S&P Global Services PMI was revised up 1.3 points to 51.0 in February from a preliminary print of 49.7, versus 52.9 in January.

Services ISM rose to 53.5 in February, above expectations of 53.0, versus 52.8 in January. Prices jumped to 62.6 from 60.4.

Factory Orders rose 1.7% in January, above expectations of +1.6%, versus a revised -0.6% in December (was -0.9%). It was the largest jump since July.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$4.29 (-0.15%)
5-Day Change: +$2.09 (+0.07%)
YTD Range: $2,607.16 - $2,955.40
52-Week Range: $2,124.31 - $2,955.40
Weighted Alpha: +33.99

Gold continues to retrace last week's corrective losses. New highs for the week were achieved in early U.S. trading as increasingly dovish Fed expectations and euro strength weighed on the dollar.



As the contango between spot and front-month futures continues to moderate, short covering in the futures probably played a role in this week's rebound. The contango is less than $10 today, but it was in the $50-$70 range at one point.

Could the dislocation associated with the massive flows of physical gold to the U.S. finally be unwinding? That will likely be determined developments on the trade front. 

The yellow metal has nearly completed a 78.6% retracement of last week's pullback. However, the trade is likely to remain somewhat cautious ahead of Friday's jobs report as they look for further clarification of the Fed's policy intentions for the remainder of the year.

A beach of $2,928.75/29.68 would clear the way for a retest of last week's record high at $2,955.40. Beyond that, the long-standing $3,000 objective remains valid.

The bull camp is going to want to see gold hold above $2,900. Today's intraday low at $2,898.36 protects yesterday's low at $2,883.58.

Silver is up more than 2% today, buoyed by Germany's massive spending plans, promises of new stimulus from China, and optimism about a possible trade deal with Mexico and Canada. Fresh cycle lows in the dollar are helping the cause for the bulls.



The convincing move back above $32 and the breach of the 20-day MA at $32.143 cleared the way for a retest of last week's high at $32.724. Fresh two-week highs would further encourage the bull camp and favor renewed tests above $33.

It's been an impressive move this week, so I wouldn't be surprised to see some profit-taking into today's close as the trade looks ahead to Friday's U.S. jobs data. Signs of a weakening labor market could further undermine bets on U.S. economic resilience. 

The 20-day MA and U.S. session lows at $32.143/057 mark first support and protect the overseas low at $31.089. The next tier of support is defined by Tuesday's low at $31.517.


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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