Gold fails to sustain gains back above $4,200 as rate cut expectations ebb

OUTSIDE MARKET DEVELOPMENTS: The longest government shutdown in U.S. history ended at 43 days after President Trump signed the funding bill late last night. While the shutdown unlocks delayed economic data releases from the past six weeks, there are concerns about the veracity of those data, and the trade swung toward risk-off today.

The White House has warned that October data may never be released due to collection gaps, leaving policymakers with incomplete information ahead of the December FOMC meeting. Expectations that the Fed may hold steady in December and wait for the dust to settle have edged higher. Fed funds futures now put the probability of a December rate cut at 47.6%, down from 62.9% yesterday and 69.6% a week ago. Doubts have crept into January expectations as well.

No official consolidated calendar has been published yet, but the backlog of reports should start coming out beginning next week. Veracity notwithstanding, there are concerns that the data will reveal that job growth continues to slow amid broader economic deceleration.

If that proves to be the case, Fed easing expectations will rebound, but only if the data also indicate inflation is in check. The general gist of yesterday's raft of FedSpeak tilted hawkish, emphasizing persistent inflation risks over labor market softening.

Atlanta Fed President Raphael Bostic announced that he will retire when his term ends in February. Bostic has historically been a dovish-leaning centrist who turned hawkish late last year amid heightened inflation worries. I expect President Trump will nominate another ardent dove similar to Stephen Miran.

Tensions between China and Japan over Taiwan have escalated following Japanese Prime Minister Sanae Takaichi's parliamentary remarks last week. Takaichi said that a Chinese military attack on Taiwan could constitute a "survival-threatening situation" for Japan, potentially justifying the deployment of its Self-Defense Forces in collective defense. China responded with strong condemnation, through its foreign ministry and a provocative social media post by its consul general in Japan, implying violent retaliation.

Pakistan is attributing recent militant attacks in Islamabad to the Taliban regime in Afghanistan. A ceasefire mediated by 
Qatar and Turkey broke down earlier in the month, and the two sides now seem on the verge of war.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$35.57 (+0.85%)
5-Day Change: +$246.92 (+6.21%)
YTD Range: $2,607.16 - $4,381.21
52-Week Range: $2,541.42 - $4,381.21
Weighted Alpha: +67.84

Gold is retreating from today's earlier three-week high amid waning expectations for another rate cut in December. However, heightened geopolitical tensions, fiscal concerns, political unrest, tariff uncertainties, and a weaker dollar provide underpinning to the market.



The failure to sustain the 4200 handle and the subsequent drop to new intraday lows leaves chart support from earlier in the week at $4,099.28/97.60 vulnerable to a test. Secondary support is offered by the declining 20-day moving average that comes in at $4,072.11.

Gold is still more than 3% higher on the week, and with more than 61.8% of the entire corrective decline retraced, significant confidence has been returned to the underlying uptrend. The next retracement level I'm watching is at $4,275.46 (78.6%). Beyond that, the all-time high at $4,381.21 is very much back in play. Minor chart resistance at $4,210.81/11.58 and today's intraday high at $4,244.81 become intervening barriers.

An eventual move to new record highs would bode well for tests above $4,400, but potential at that point would be to $4,515.63 based on a Fibonacci extension. Further out, $5,000 remains a valid objective.

UBS has recently said that it remains bullish on gold, forecasting a price target of $4,200 amid strong central bank purchases, robust ETF inflows, and escalating geopolitical risks that bolster its safe-haven appeal. The bank views the recent pullback as temporary, with upside potential to $4,700 if tensions intensify or market volatility spikes.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.524 (+0.98%)
5-Day Change: +$5.356 (+11.15%)
YTD Range: $28.565 - $54.465
52-Week Range: $28.565 - $54.465
Weighted Alpha: +91.30

Silver gains stalled just shy of the $54.465 record high from 17-Oct, leaving a potential double top. Despite the intense intraday sell-off of more than 4%, the magnitude of the gains notched earlier in the week bolstered confidence in the long-term uptrend.

 

However, volatility remains high as the market continues to equalize after London inventories plunged to record lows earlier in the year amid tariff worries. With that threat seemingly behind us, the flow of metal reversed as traders sought to capitalize on a "historic arbitrage opportunity" according to Bloomberg, "pulling stocks out of warehouses elsewhere."

"Vaults underpinning the London market added nearly 54 million troy ounces of silver in October, an amount weighing more than 100 of the UK capital’s iconic double-decker buses."

At this point, I'm not inclined to give much credence to the potential double top given that silver's fundamentals remain broadly supportive thanks to its dual role as both a safe-haven asset and a key industrial metal facing supply constraints from robust demand in solar panels, electronics, AI and 5G infrastructure, and EVs.

A move to new all-time highs would favor tests above $55, with potential to $56.886 based on a Fibonacci extension. Such a move would also boost confidence in the extended bullish scenario that targets $60.

Intraday resistances at $53.270 and $54.000/115 now protect the $54.390/465 highs.

On the downside, first support is at $52.090/000. More important levels are $50.877, $50.297, and the low for the week at $49.359. The low for the week at $48.335 is thought to be well protected.


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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