Gold sets two-week highs on rising trade tensions, as silver surges to 14-year highs

OUTSIDE MARKET DEVELOPMENTS: Trade tensions are back on the upswing after President Trump announced 35% tariffs on Canadian imports would go into effect on August 1. ″[Canada] has many Tariff, and Non-Tariff, Policies and Trade Barriers, which cause unsustainable Trade Deficits against the United States ... The Trade Deficit is a major threat to our Economy and, indeed, our National Security,” according to the letter sent to Canadian PM Mark Carney.

Trump also believes Canada is not doing enough to halt the flow of fentanyl. He went on to warn Canada not to retaliate. “If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 35% that we charge,” he wrote.

The S&P 500 and NASDAQ have retreated from Thursday's record highs as diminished risk appetite prompts profit taking ahead of the weekend. Gains in the DJIA this week stalled ahead of 45,000, leaving the Nov/Jan double top at 45,0054/071 intact.

The Administration also escalated pressure on the Fed and Chairman Powell this week. “The president is extremely troubled by your management of the Federal Reserve system,” wrote Russel Vought, the director of the Office of Management and Budget, in a letter to Powell.

With inflation in check despite trade uncertainties, and the economy and labor market resilient, Trump believes the Fed funds rate is 300 bps too high. However, markets are signalling a far less dovish reality, with Fed funds futures pricing just under 50 bps in cuts by year-end.

There's quite a bit of FedSpeak on tap next week, and the Beige Book comes out on Tuesday. Arguably, the two most dovish FOMC members are Governor Waller and Chicago Fed President Goolsbee, but nobody is even close to being on board with what President Trump is asking for.

"I think we're too tight, and we could consider cutting the policy rate in July," Waller said on Thursday. Fed funds futures suggest there's just a 6.7% chance of a 25 bps cut at the July 29-30 FOMC meeting.

After this week's thin economic calendar, the market is eagerly looking ahead to next week's inflation data. Expectations suggest both CPI and PPI will remain subdued with scope for modest downticks in annualized inflation rates.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$21.66 (+0.65%)
5-Day Change: +$13.59 (+0.41%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,354.48 - $3,495.89
Weighted Alpha: +38.82

Gold is setting new highs for the week, as heightened trade tensions spurred safe-haven demand. While the yellow metal appears poised for a second straight higher weekly close, gains above last week's high at $3,364.27 have been limited.

 

A more convincing breach of that level would bode well for a move back above $3,400. Penetration of the 16-Jun high at $3,449.14 would put the record high at $3,500 back in play.

The dollar index is trading higher for a ninth consecutive session, providing a headwind for gold. However, momentum on dollar upticks has been lackluster, and I still see the gains as corrective.

I also believe the recent consolidation in gold is a mere pause in the long-term uptrend. Price action since mid-May has formed a symmetrical triangle. An eventual upside breakout would project gold to new record highs.

When asked about a bear case for gold, the World Gold Council's Ray Jia thinks the yellow metal could face short- to mid-term pressure if:  

• Geopolitical or trade risks ease – cooling risk and uncertainty, or
• The dollar strengthens and yields rise – higher opportunity costs, or
• Gold investment demand (central bank purchases, or ETF buying, or retail bullion demand) slows – weakening momentum.

While hopes for a ceasefire in Gaza remain elevated, meaningful progress toward a ceasefire and peace deal in Ukraine has been elusive. President Trump seems pretty committed to creating a path to peace for both conflicts.

Despite recent upticks, the dollar index set a more than three-year low just last week. Meanwhile, global central banks remain tilted toward easing, and the Fed is widely expected to resume rate cuts later this year.

Central bank gold demand remains robust amid U.S. fiscal worries and ongoing de-dollarization. There is no indication that it will change anytime soon.

Global ETFs saw H1 inflows of $38 bln (322 tonnes), the strongest first half performance since H1'20, driven by geopolitical risks, trade war worries, and dovish central bank policies. Total global AUM hit a record $383 bln with holdings at 3,616 tonnes, the highest in 34 months.

On the downside, the important 30-Jun low at $3,256.02 (30-Jun low) is now well protected by tiers of support at $3,323.20 (today's low), and Wednesday's low at $3,284.61.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.519 (+1.40%)
5-Day Change: +$0.748 (+2.03%)
YTD Range: $28.565 - $37.682
52-Week Range: $26.524 - $37.682
Weighted Alpha: +28.70

Silver has surged to 14-year highs above $38, shrugging off any headwind provided by a firmer dollar. The white metal is being spurred by firmer gold prices and this week's record highs in copper.

 

I have maintained that the supply and demand fundamentals remain broadly supportive. The proliferation of computers and cell phones over the past decade drove a 78% surge in silver demand for electronics from 272 Moz in 2015 to 486 Moz in 2024. Solar demand surged 289% over the same period.

Meanwhile, demand has exceeded available supply since 2021. This year's deficit is expected to be 149 Moz, marking the fifth consecutive year of supply deficit. 

The Silver Institute notes that silver ETPs saw inflows of 95 Moz in H1, surpassing the total for all of last year. Total global holdings reached 1.13 Boz, within striking distance of the COVID-era high at 1.21 Boz.

Clearly, investors are taking a heightened interest in silver both as a strategic investment and a safe-haven alternative to gold. Silver tends to perform well during periods of uncertainty, high inflation, and currency depreciation.

The long-standing Fibonacci objective at $38.750 is within striking distance. Above that, the $40 level attracts. Beyond the latter, the next Fibonacci target is at $41.610.

Former resistance at $37.288/198 now marks first support, and protects today's overseas low at $36.956. The 20-day moving average has been an important support over the past week and comes in at  $36.556 today.

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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