Gold surges to record on tariff and downgrade concerns, pulling silver to 5-mo highs

OUTSIDE MARKET DEVELOPMENTS: Markets have rotated back to a more risk-averse stance after the White House announced a 25% tariff on all imported passenger vehicles, which will take effect on April 3. The new levy will apply to all cars, SUVs, minivans, cargo vans, light trucks, and key auto parts.

Automakers' shares led stocks lower, and global trade tensions ratcheted higher. Countries that export cars to the U.S. are all contemplating retaliation. “The only solution for the EU will be to raise its own tariffs on American products,” said French finance minister Eric Lombard.

Ongoing uncertainty and worries about an all-out global trade war have weighed on investor and consumer sentiment. The market optimism that emerged late last year when Donald Trump won the Presidency has all but evaporated.

Moody's has warned of a potential downgrade to America's AAA debt rating. "The potential negative credit impact of sustained high tariffs, unfunded tax cuts and significant tail risks to the economy have diminished prospects that these formidable strengths will continue to offset widening fiscal deficits and declining debt affordability," said the ratings agency.

Q4 GDP was revised up to +2.4% in the third report from 2.3% previously, while the chain price index cooled to 2.3% versus 2.4% in the second report. While the revisions were favorable, they weren't significant enough to alter Fed expectations. Prospects for a June rate cut actually dimmed slightly.

Markets will be paying close attention to tomorrow's release of February personal income and PCE data. The market is anticipating 0.3% increases in both the headline and core PCE chain price indexes, which are the Fed's favored measures of inflation.

The dollar index backed off recent three-week highs as the market digests the latest tariff news and the downgrade risk. Recent dollar gains are seen as corrective, although a breach of Monday's low at 103.84 is needed to return focus to the downtrend that has dominated since the first of the year.

Goods Trade Balance narrowed to -$147.9 bln in February, outside expectations of -$135.0 bln, versus a revised -$155.6 bln in January (was -$153.3 bln).

Q4 GDP (3rd Report) was raised to +2.4% on expectations of +2.3%, versus +2.3% previously and +3.1% in Q3.

Initial Jobless Claims fell 1k to 224k in the week ended 22-Mar, below expectations of 225k, versus 225k in the previous week. Continuing claims fell 25k to 1,856k in the 15-Mar week from 1,881k in the previous week.

Pending Home Sales Index rose 2% to 72.0 in February from 70.6 in January. The market was looking for a more modest 1.5% increase.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$32.10 (+1.06%)
5-Day Change: +$6.89 (+0.23%)
YTD Range: $2,607.16 - $3,056.51
52-Week Range: $2,188.17 - $3,056.51
Weighted Alpha: +37.76

Gold has reached new all-time highs, driven by the latest tariff news and heightened worries about a global trade war. Moody's warning of a potential U.S. debt downgrade has further boosted the haven appeal of the yellow metal.



The breach of last week's record high at $3,056.51 clears the way for a push to the $3,100 level. Additional credence has also been lent to the $3,149.84 Fibonacci objective and the longer-term target at $3,500.

On the heels of BofA's gold forecast upgrades mentioned in yesterday's commentary, Goldman Sachs has also boosted its outlook. Goldman now sees gold at $3,300 by year-end, a $200 increase from its previous forecast of $3,100.

Like BofA, Goldman cited stronger-than-expected central bank demand and solid inflows into gold ETFs.“Central banks — particularly in emerging markets — have increased gold purchases roughly fivefold since 2022, following the freezing of Russian reserves,” wrote Goldman analysts. “We view this as a structural shift in reserve management behavior, and we do not expect a near-term reversal.”

The significance of support centered on the $3,000 level has been reinforced by recent price action. The $3,036.08/$3,031.15 zone now provides a minor intervening barrier.

Silver is trading at five-month highs, helped by fresh record highs in gold and copper, and a softer dollar. These factors seem to be overriding the negative demand implications from auto industry tariffs.



The auto sector accounts for over 70 Moz of silver demand annually. Silver loading in cars has increased significantly in recent years, particularly as EVs have become more popular. EVs contain roughly twice as much silver as a conventional ICE vehicle.

The breach of last week's high at $34.208 bodes well for the expected retest of the more than 22-year high set in October at $34.853. Beyond that, the $35.348 high from October 2012 would be in play.

I'd like to see silver close above $34.00 today, so I'll call that first support. Secondary support is marked by the low from early U.S. trading at $33.779.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.