Gold sets another new record, while silver eases from 5-month highs

OUTSIDE MARKET DEVELOPMENTS: Personal income jumped 0.8% in February on expectations of +0.4%. Spending came in below expectations at +0.4%.

PCE inflation was in line with expectations at +0.3% (2.5% y/y). Core PCE inflation was slightly warmer than expected at +0.4% (2.8% y/y).

These data will not materially change the Fed policy outlook. The implied Fed funds rate for December is currently 3.6925%, reflecting expectations for 68 bps in easing by year-end, with the first 25 bps cut not fully priced in until July.

That leaves markets to focus on rising trade tensions and ongoing geopolitical risks. Risk aversion remains elevated heading into the weekend, and all the major stock indexes are under pressure.

Bloomberg reports that the EU is preparing a term sheet of concessions to avoid U.S. reciprocal tariffs that are supposed to go into effect next week. If there's a bright spot on the trade front, this is it.

Perhaps not surprisingly, the final Michigan consumer confidence reading for March was revised down to a 28-month low of 57.0 from 57.9, versus 64.7 in February. Meanwhile, one-year inflation expectations were nudged up to a 32-month high of 5.0% from a preliminary print of 4.9% and 4.3% in February.

Personal Income +0.8% in February, above expectations of +0.4%, versus a revised +0.7% in January (was +0.7%).

PCE +0.4%, below expectations of +0.6%, versus a revised -0.3% in January (was -0.2%).

PCE Chain Price Index +0.3%, in line with expectations, versus +0.3% in January; 2.5% y/y, unchanged from January. Core +0.4%, above expectations of +0.3%, versus +0.3% in January; 2.8% y/y, up from 2.7% in January.

Michigan Consumer Sentiment (final) was revised down to 57.0 from 57.9, versus 64.7 in February. Inflation expectations were revised up to 5% (1-year) and 4.1% (5-year).


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$17.63 (+0.58%)
5-Day Change: +$50.66 (+1.68%)
YTD Range: $2,607.16 - $3,084.78
52-Week Range: $2,231.10 - $3,084.78
Weighted Alpha: +39.79

Gold surged to another round of new record highs, spurred by persistent worries about a developing trade war, rising inflation expectations, and a soft dollar. The yellow metal is poised for its fourth consecutive higher weekly close.



The targeted $3,100 level came within striking distance, but I wouldn't be surprised to see some profit taking ahead of the weekend. Gold has gained more than 2% this week and nearly 9% from the last significant corrective low at $2,835.23 (28-Feb).

The market has become quite overbought on a short-term basis. Additionally, reports that the EU may be preparing to concede on some of its tariffs on U.S. goods may ease trade tensions somewhat.

An intraday chart point at $3,069.52/18 marks first support. Thursday's low at $3,018.51 stands in front of the more important $3,002.89/$3,000.00 level.

Today's earlier high at $3,084.78 now protects the $3,100.00 target. Above the latter, the $3,149.84 Fibonacci level remains a valid objective.

Silver set a fresh five-month high of $34.543 in early U.S. trading before turning lower on the day. The white metal is still poised for a higher weekly close, its third out of the last four.



The white metal continues to be supported by hard-charging gold, red-hot copper, and a weak dollar. While the multi-decade high set last year in silver at $34.853 appears to be safe this week, the trend remains decisively favorable, and any setback is likely to be viewed as a buying opportunity.

An eventual breach of the $34.853 peak would initially shift focus to the $35.348 high from October 2012. However, the trade would certainly start buzzing about $40 and $50 silver at that point.

While such a move is not out of the question, it would almost assuredly be a wild ride. Silver can be notoriously volatile, and if we are to see $50 silver, speculators are likely to get thrashed along the way.

Ross Norman of Metals Daily has written an interesting "rant" on silver. "[T]he commentariat are claiming silver is about to “go parabolic”, “the elites are losing control” … “massive short covering is imminent” … yet they never stop to consider the consequences of all this hyperbole," warns Norman.

When this talk kicks up, the bullion banks are always portrayed as evil market manipulators with huge short positions in the futures market that must be broken to allow silver to find its fair market price. The reality is that the banks are short the futures to hedge their physical holdings.

"[T]hey are price neutral – it's a mechanism to borrow or lend metal to companies for financing or inventory management, such as refinery work-in-process or mine production," says Norman.

Zaner Metals provides hedging services for clients in the precious metals vertical. They are invariably short the market against their physical inventory, so not surprisingly, I concur with Mr. Norman's assessment.

That being said, I do see the long-term fundamentals for silver as quite favorable. I think we do see $50 again, but it may take five years (or more?) to get there with many a wild fluctuation in the interim. Buy and hold has always been my strategy for silver.


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.