Gold and silver retreat from recent highs

OUTSIDE MARKET DEVELOPMENTS: The Fed is in a bit of a bind after the FOMC's SEP revealed slower growth projections and hotter projections for inflation. Suddenly the financial press is rife with headlines that mention 'stagflation'.

The FOMC policy statement noted, "uncertainty around the economic outlook has increased."  Fed Chairman Powell thinks inflation is on the rise "partly in response to tariffs."

“Tariffs, raise prices and reduce output. So that’s a stagflationary impulse, which is different from saying this is stagflation,” said Chicago Fed President Goolsbee this morning on CNBC. Goolsbee still believes rates will be lower than they are today over the next 12 to 18 months.

Fed funds futures are leaning toward a 25 bps rate cut in June, but it is not fully priced in. The implied Fed funds rate for year-end is 3.6475%, suggesting the market believes there will be nearly 75 bps in cuts between now and then.

It's a quadruple-witching Friday with nearly $5 trillion in options expiring today, including for gold ETFs. The market is expecting high volume and high volatility today. Weak earnings already have shares on defense amid elevated risk aversion.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$13.90 (-0.46%)
5-Day Change: +$26.44 (+0.89%)
YTD Range: $2,607.16 - $3,056.51
52-Week Range: $2,159.42 - $3,056.51
Weighted Alpha: +39.48

Gold is defensive at the end of the week on profit-taking ahead of the weekend and options expiration-related activity. The yellow metal is still trading higher on the week and a close above $2,985.00 would confirm a third straight higher weekly close.



The World Gold Council estimated earlier in the week that there were "roughly US$8bn in net delta-adjusted notional in options contracts from US gold ETFs that expire Friday 21 March, and US$16bn in options on futures that expire on 26 March."

Today's setback comes a day after gold reached its latest record high at $3,056.51. The $3,049.34 measuring objective was satisfied and modestly exceeded. The next upside targets are at $3,100.00 and $3,149.84 (261.8% retracement of the most recent corrective move).

The WGC's Taylor Burnette makes an interesting observation in the report linked above: "Gold has remained, on average, above previous multiples of US$500/oz for nine days before pulling back. At the same time, however, gold has rebounded above the same level in just a few days four out of five times."

At this point, gold has registered four consecutive closes above $3,000. Do we have several more days above $3,000 in the offing, or is time for a multi-day pullback? Today's close may offer some insight.

Burnette also notes that it has taken gold 1,700 days on average, to achieve previous US$500/oz increments. However, the move from $2,500 to $3,000 took just 210 days. While gold's ongoing rise makes that $500 increment an ever-shrinking percentage of the gold price, it's still reflective of strong momentum.

Safe-haven interest in gold is likely to remain elevated amid ongoing trade uncertainty and rising geopolitical risks. Central bank demand also seems likely to remain strong this year.

Worries about revived inflation – even as global monetary policy remains biased toward easing – provide further support to gold. The recent drop in the dollar index to five-month lows lends additional credence to the bullish scenario.

President Trump signed an Executive Order on Thursday to boost American mineral production, streamline permitting, and enhance national security. “Minerals” covered by the order include critical minerals, uranium, copper, potash, gold, and any other element, compound, or material as determined by the Chair of the NEDC, such as coal.

While the prospect of increased supply may be contributing to today's setback, the fact that gold was specifically mentioned by the White House is an acknowledgment of the yellow metal's strategic importance. I view this as bullish for the metals.

Keep an eye on support at $3,003.04/$3,000.00 today. A close below this level would shift focus to the next tiers of support at $2,982.85/80.54 and $2.955.40.

Silver is trading lower for a third straight session after this week's gains faltered above $34. The white metal appears poised for its first lower weekly close in three amid heightened risk-off sentiment.

 

Germany's plans to borrow and spend on defense and infrastructure cleared the final Parliamentary hurdle today. So we may be seeing a bit of "sell the fact" in silver today. I still see German spending and Chinese stimulus as broadly supportive to the commodities complex.

While silver wasn't specifically mentioned in the executive order about increasing U.S. mineral production, it almost assuredly is considered a critical element. Silver tends to be closely correlated with both copper and gold.

The dive back below $33 leaves the 20-day moving average at $32.698 vulnerable to a test. I suspect renewed buying interest will surface ahead of $32, leaving last week's low at $31.872 protected.

Fresh cycle highs above Tuesday's peak at $34.208 would bode well for the scenario that still calls for a retest of the 22-year high set in October at $34.853. Beyond that, the $35.348 high from October 2012 would be in play.


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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