Gold and silver reach fresh records for a third day this week
OUTSIDE MARKET DEVELOPMENTS: This week's inflation data were mixed. Both headline and core CPI held steady in December, at 2.7% y/y and 2.6% y/y, respectively. Meanwhile, PPI warmed to 3.0% y/y in November, versus 2.8% in October and 2.7% in September. Core CPI also rebounded to a four-month high of 3.0%.
Perhaps not surprisingly, the White House was quick to celebrate the CPI print as evidence that "inflation is firmly under control," dialing up the pressure on Jerome Powell to deliver a meaningful rate cut. However, the rise in PPI may indicate ongoing upstream wholesale price pressures that could feed into future consumer inflation.
Ongoing pressure from the White House and the recent DoJ subpoenas are stoking concerns that the Fed could lose its independence. Powell's term as Fed Chair ends in May, and it's safe to assume Trump will appoint an ardent dove to helm the central bank.
Rate cut bets for this year remain little changed based on Fed funds futures. The trade continues to anticipate 50 bps of easing this year, but further cuts aren't expected until H2.
Reports are circulating that President Trump has decided on U.S. military intervention against Iran in response to the regime's deadly crackdown on anti-government protests, which has killed over 2,400 demonstrators. Multiple sources, including Reuters and European officials, suggest that strikes could occur within the next 24 hours.
Trump continues to push for U.S. control or annexation of Greenland, declaring that "anything less than" full U.S. ownership is "unacceptable" for national security reasons. Greenland and Denmark have firmly rejected these overtures, and concerns about fracturing NATO unity are mounting.
MBA Mortgage Applications Index surged 28.5% to a 16-week high of 348 for the week ended 9-Jan. The 30-year mortgage rate fell to 6.18%, nearly a three-year low.
PPI rose 0.1% in October, below expectations of +0.2%, versus +0.6% in September; 2.8% y/y, versus 3.0% in September. Core +0.3% m/m; 2.9% y/y, steady versus September.
PPI rose 0.2% in November, in line with expectations, versus +0.1% in October; 2.8% y/y, versus 3.0% in September. Core UNCH, below expectations of +0.2%, versus +0.3% in October; 3.0% y/y, versus 2.9% in October.
Retail Sales rose 0.6% in November, above expectations of +0.4%, versus -0.1% in October.
Existing Home Sales rose 5.07% to a 4.35M pace in December, above expectations of 4.21M, versus 4.14M in November.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$43.81 (+0.96%)
5-Day Change: +$181.19 (+4.07%)
YTD Range: $4310.83 - $4,642.74
52-Week Range: $2,670.32 - $4,642.74
Weighted Alpha: +73.51
Gold extended its run to new all-time highs for a third consecutive day this week, as expectations of U.S. military action in support of Iranian protesters boosted safe-haven demand. The yellow metal also continues to be underpinned by silver's explosive rally.
While the dollar is catching some haven interest as well, I don't see it as much of a headwind for gold. The dollar index is trading near six-week highs. A breach of 99.26/31 would suggest potential for a return to the 100 zone.
Existing Fibonacci objectives at $4,686.61 and 4719.43 are within striking distance for gold. Beyond that, $4,800 and $4,900 would attract, with the long-standing $5,000 target very much in play.
The $4,600 zone marks initial support. Additional supports at $4,586.66 and $4,571.16 protect the low for the week set on Monday at $4,509.87.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$3.635 (+4.18%)
5-Day Change: +$14.674 (+18.77%)
YTD Range: $71.429 - $92.909
52-Week Range: $28.565 - $92.909
Weighted Alpha: +265.63
Silver continues to press deeper into uncharted territory as its remarkable rally continues. The white metal is up more than 30% YTD, +16% this week so far, and more than 7% just today.
Chinese export controls on silver, which went into effect at the beginning of the year, added to persistent supply concerns in a market that has faced a structural supply deficit for five years. China ranks second in terms of global mine output, but they control 60-70% of the world's refined silver trade.
Add to that the current geopolitical tensions, domestic political unrest, expectations for further Fed easing, worries about Fed independence, mounting fiscal concerns, and ongoing de-dollarization, and it becomes a bit of a perfect storm. Silver remains "cheap" when compared to the other precious metals, but has the added benefit of robust and growing industrial demand.
Technical objectives at $88.297, $90, and $91.009 have been satisfied and exceeded this week. Additional gains toward $100 are a real possibility, although conditions are likely to remain volatile. Intervening targets are noted at $95 and $96.571.
Initial support is at the $92 zone, which protects $90 and the earlier U.S. low at $89.727. The overseas low $86.940 looks to be well protected at this point, but when the longs finally believe this market has gone far enough and requires correction, silver can go down just as fast (if not faster) than it went up.
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.