Gold and silver recover from overseas tests of the downside

OUTSIDE MARKET DEVELOPMENTS: The escalating Middle East conflict continues to weigh on risk appetite as the week begins. The U.S. continues to strike Iranian oil facilities, military sites, and cities like Tehran and Qom. In response, Iran has intensified retaliatory missile and drone barrages targeting Israel, Gulf states, and U.S. assets across the region.

Mojtaba Khamenei, the son of the late Ayatollah Ali Khamenei, was formally appointed as Iran's new Supreme Leader on Sunday. The new leader is widely regarded as an anti-Western hardliner who is even more ideologically rigid and confrontational than his father. He likely already has a target on his back.

Iran has effectively closed the Strait of Hormuz through threats and attacks on shipping, spiking global oil prices above $100–$120 per barrel and broadening the conflict into a multi-front regional energy and military crisis. Beyond the mounting geopolitical risks, soaring energy prices have stoked broader inflation concerns.

Mounting price risks have weighed on rate cut expectations, pushing the likelihood of further easing deeper into H2. Currently, a 25 bps cut isn't fully priced until October.

Prospects for U.S. yields to remain higher for longer and risk-off rotations out of stocks have buoyed the dollar. While the dollar index eked out a new 14-week high in Asian trading, selling interest emerged subsequently, leaving the 100 level protected. Note the potential double top.



Recent U.S. economic data show a slowdown in labor market momentum, with nonfarm payrolls unexpectedly declining by 92k in February, well below expectations of +59k, and the unemployment rate rose to 4.4%. Persistently soft retail sales and the limited government shutdown pose growth risks and another level of uncertainty.

Focus this week will be on U.S. inflation data. Annualized CPI and core CPI inflation are expected to hold steady at 2.4% and 2.5% respective. However, PCE inflation readings are projected to accelerate modestly.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$85.54 (-1.65%)
5-Day Change: -$226.10 (-4.25%)
YTD Range: $4,310.83 - $5,595.02
52-Week Range: $2,882.53 - $5,595.02
Weighted Alpha: +73.19

Gold began the week on the offer, slipping to test the $5,000 zone in overseas trading, as dollar, inflation, and deleveraging dynamics eclipse ongoing haven interest. Last week, the yellow metal posted its first lower weekly close since the week ended 30-Jan.



Besides the war in the Middle East, there are plenty of other uncertainties that suggest the downside in gold is probably limited. The approach of $5,000 attracted some buying interest, with the 20-day MA continuing to generally hold on a close basis.

North American investors were big sellers of ETFs last week, accounting for 33.8 tonnes of outflows. However, investors in other regions took advantage of last week's initial price drop, adding to holdings. Asian investors bought 10.3 tonnes. Nonetheless, the -20.3 tonne net was the largest weekly outflow since May.

  

Today's overseas low at $5,016.24 reinforces the $5,000.00/$4,997.76 support level. Penetration of the latter would return focus to the rising 50-day MA at $4,881.85 and the more important 17-Feb low at $4,847.74.

If gold can hold above $5,000, further tests above $5,200 become likely. Penetration of $5,206.10 (4-Mar high) would bode well for additional retracement to $5,249.54 (24-Feb high), with potential back to last week's high at $5,418.84.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$1.321 (-1.56%)
5-Day Change: -$5.685 (-6.36%)
YTD Range: $64.140 - $121.630
52-Week Range: $28.565 - $121.630
Weighted Alpha: +158.49

Silver has recovered from the intraday drop below $80 to trade higher on the day, but inflation concerns, less dovish Fed expectations, and mounting worries about the overvaluation of tech/AI shares are seen as headwinds. The white metal remains quite volatile in the lower half of the broad $121.63/$64.140 range.



AI is extraordinarily energy-intensive, so the surge in energy costs assuredly has the finance teams doing some recalculating. Additionally, the prospect of higher-for-longer interest rates could slow planned capex spending, impacting industrial demand for silver, copper, and a host of other commodities.

Today's intraday low at $79.767 lends significance to the $80 zone, providing a good interevening barrier ahead of last week's low at $78.092. Below the latter, the 61.8% retracement level of the rebound off the $64.140 low comes in at $74.461.

Heightened concerns about recession, and the AI theme will weigh more heavily on silver, so I do expect the white metal to underperform. Further tests above 70 in the gold/silver ratio seem likely.  However, the longer-term outlook for silver remains positive due to the persistent supply deficit, now in its sixth straight year.

If silver can mount a convincing move back above $90, a more favorable tone within the range would be evident. That would shift focus to the 3-Mar high at $91.322 and last week's high at $96.393. Obviously, we're still talking very wide ranges, so volatility will remain high. Keep an eye on the closes this week in relation to the 20- and 50-day moving averages for additional technical clues.  


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.