Gold consolidates, awaiting fresh inputs
Outside Market Developments: The ongoing war in the Middle East, now in its 12th day, continues to drive uncertainty and risk aversion. The U.S. reportedly destroyed 16 Iranian mine-laying vessels near the Strait of Hormuz, in an effort to keep the critical oil chokepoint open. Meanwhile, Iran continued to launch missile and drone strikes on Israel, Gulf states like Saudi Arabia and Kuwait, and multiple commercial ships in or near the Strait.
While oil prices have moderated from Monday's spike high near $120, Brent crude is still trading more than $20 higher than a year ago, despite the IEA announcement of an emergency reserve release of 400 million barrels. This marked the largest coordinated stock release in the IEA's history, unanimously agreed upon by its 32 members to address unprecedented supply challenges caused by the ongoing U.S.-Iran war.
Securing and fully reopening the Strait of Hormuz is a primary objective of the U.S. military. "If Iran does anything that stops the flow of Oil within the Strait of Hormuz, they will be hit by the United States of America TWENTY TIMES HARDER than they have been hit thus far," President Trump posted on TruthSocial earlier in the week.
One might think that the huge reserve release would quell immediate supply concerns, but some argue that it's suggestive of preparations for a prolonged war. However, President Trump said today that the war will end "soon" because there is "practically nothing left to target."
Securing and fully reopening the Strait of Hormuz is a primary objective of the U.S. military. "If Iran does anything that stops the flow of Oil within the Strait of Hormuz, they will be hit by the United States of America TWENTY TIMES HARDER than they have been hit thus far," President Trump posted on TruthSocial earlier in the week.
Today's consumer inflation report was largely benign. Headline CPI rose 0.3% in February, in line with expectations, versus +0.2% in January. The annualized rate was steady at 2.4%. Core CPI was +0.2%, in line with expectations, versus +0.3% in January; +2.5% y/y, unchanged from January.
Focus now shifts to Friday's PCE report for January, which includes the Fed's favored measure of inflation. Market expectations for this pre-war period are generally neutral, even as price risks have soared more recently.
The dollar is trading higher today amid those inflation concerns and expectations that the Fed will remain on pause into Q4. The next 25 bps rate hike isn't fully priced until December.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$6.70 (-0.13%)
5-Day Change: +$34.74 (+0.68%)
YTD Range: $4,310.83 - $5,595.02
52-Week Range: $2,910.24 - $5,595.02
Weighted Alpha: +76.97
Gold is trading modestly lower with price action confined to Tuesday's range. The safe-haven bid associated with the war and broad trade and geopolitical uncertainty is being offset by inflation concerns that have dimmed prospects for Fed easing this year and lifted the dollar.
pent the majority of the week in the lower half of the range that was established on Monday and Tuesday. The inability to sustain those initial tests above $5,400 sets up the yellow metal's first lower weekly close in five weeks.
With the $5,000 support zone considered intact and the 20-day moving average continuing to attract buying interest, the technical bias remains bullish. As long as the war is ongoing, the downside is seen as limited.
Evidence that Iran's ability to project power and harass shipping in the Straits has been eliminated (or significantly degraded) would signal that U.S. military action in the Middle East could begin winding down. This would weigh on gold initially, potentially leading to a retest of the $5,000 level.
The midpoint of the range-within-the-range comes in at $4,912.76. This level protects the $4,847.74 low from 17-Feb, which corresponds closely with the 50-day MA. Below that, the $4,800/$4,793.33 would be in play.
However, signs that the war is wrapping up would also push oil prices lower, diminishing inflation risks. Fed easing expectations would rebound, and the dollar would retreat, ultimately providing renewed lift for gold.
A breach of last week's high at $5,418.84 and a minor chart point at $5,450.83 (30-Jan high) would clear the way for a retest of the record high at $5,595.02. Ultimately, the dominant trend is still seen as bullish, and the magnitude of the retracement already seen strongly suggests the corrective low is in at $4,406.69.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$1.782 (-2.02%)
5-Day Change: +$1.831 (+2.19%)
YTD Range: $64.14 - $121.630
52-Week Range: $28.565 - $121.630
Weighted Alpha: +165.81
Silver was unable to sustain tests in the Asian session above $90, as volatility persists. The white metal remains confined to last week's range, underpinned by haven interest, but with pared rate cut bets and a firmer dollar providing headwinds.
The market is still reeling from the extreme volatility seen earlier in the year, where the sharp run-up to record levels above $120 significantly disrupted the global supply chain. The subsequent near halving of the price over the course of just six sessions has everyone a little gun-shy.
Nonetheless, the fundamental backdrop remains bullish. The Silver Institute projects the market to post its sixth consecutive annual supply deficit of around 67 Moz this year, despite a stronger supply picture. An aproximately 1% rise in mine production to 820 Moz will help boost global supply by 1.5% to a decade-high of 1.05 Boz.
As the dust continues to settle, I expect the bulls to be increasingly emboldened as downside risk points within the broad range become more apparent. I continue to watch the rising 20-day MA on a close basis. The significance of the $80 zone was reinforced by Monday's low at $79.767, providing good protection in front of last week's low at $78.092.
A sustained move above $90 is needed to return focus last week's high at $96.393. The $90.980/$91.322 area now marks good intervening resistance.
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.