Gold and silver rebound from Monday's weakness

OUTSIDE MARKET DEVELOPMENTS: Risk aversion remains elevated after stocks extended losses on Monday. While shares have stabilized somewhat today, ongoing uncertainty about tariffs and the impact of significant government downsizing continue to weigh on market sentiment.

Federal government employment declined by 10k in February, according to the nonfarm payrolls report that came out on Friday. However, the reality of the Trump administration's efforts to cut the size of government has yet to be fully reflected in the data.

There are many private sector companies reliant on government contracts and workers that have or will be rethinking their staffing needs. Certainly, service providers in the DC area will be considering cuts to headcount. 

President Trump recently warned there would be a "period of transition," which many have translated to mean "recession." As private sector hiring slows, absorbing former government workers in the private workforce will be increasingly challenging. 

President Trump said that he will double tariffs on Canadian steel and aluminum imports to 50% in response to Ontario's 25% price hike on electricity exported to a handful of northern states. Trade tensions continue to escalate.

Trade war concerns and increasingly dovish Fed expectations continue to weigh on the dollar. The dollar index has fallen to five-month lows.  

NFIB Small Business Optimism Index fell 2.1 points to 100.7 in February, below expectations of 101.0, versus 102.8 in January. It was the second straight monthly decline but the fourth consecutive month above the 51-year average of 98. "Uncertainty is high and rising on Main Street," warned NFIB Chief Economist Bill Dunkelberg.

JOLTS Job Opening rebounded 232k to 7,740k in January, above expectations of 7,630k, versus a downward revised 7,508k in December. Quits surged 171k to 3,266k.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$23.69 (+0.82%)
5-Day Change: +$49.46 (+1.73%)
YTD Range: $2,607.16 - $2,955.40
52-Week Range: $2,146.66 - $2,955.40
Weighted Alpha: +33.33

Gold has recovered from yesterday's setback, buoyed by rising trade tensions and a weaker dollar. The yellow metal set a new high for the week, leaving last week's high at $2,929.17 vulnerable to a retest.



Today's rebound comes despite yesterday's close below the 20-day MA and the $2,900 level, which suggested short-term vulnerability. However, Trump's threat of a retaliatory tariff increase on Canada seems to have stoked haven interest once again.

Additionally, Fed funds futures now imply 82 bps in cuts by year end, even though a cut at this month's FOMC meeting still appears to be off the table. Lower interest rates increase the appeal of non-yielding gold.

The market will get February readings on consumer inflation tomorrow and producer inflation on Thursday. Signs of waning inflationary pressure could pull expectations for the next rate cut forward and provide a boost for gold.

If inflation comes in hotter than expected, it will temper dovish sentiment. However, worries about stagflation will intensify and perhaps provide a lift to gold's haven appeal.

All in all, gold appears to be in a pretty favorable position despite my concerns about some bearish chart features that have emerged in recent weeks. The greatest downside risk may be deleveraging pressures if the stock market sells off further, but gold held up fairly well on Monday.

A breach of chart/Fibonacci resistance at $2,929.17/68 would bode well for a retest of the $2,955.40 record high from 24-Feb. Beyond the latter, $3,000 remains a valid upside target.

Yesterday's low at $2,882.53 reinforces the midpoint of last week's rally at $2,882.20 as a short-term level to watch.  The 61.8% retracement level of the move from $2,835.23 to $2,929.17 comes in at $2,871.12.

Silver is outperforming today, surging to three-week highs above $32.750. The white metal is being buoyed by more dovish Fed expectations and a weaker dollar. Gold's resilience and strength in copper also offer support.

 

The bull camp has been encouraged recently by Germany's proposed defense and infrastructure spending blitz, as well as promises for more stimulus from China. This is all helping to highlight the underlying bullish supply/demand dynamics of the silver market.

Silver has traded above $33.00 several times since mid-February but has yet to register a close with a 33-handle. Such a close would bolster confidence in this year's uptrend, but the $33.340 high from 14-Feb must be negated to clear the way for a retest of the more than 22-year high at $34.853 (22-Oct'24).

Today's U.S. session low at $32.456 marks initial support and protects the 20-day MA at $32.249. Today's overseas low at $31.872 is now the important short-term level to watch.


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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