Gold and silver weighed by rising Middle East tensions
OUTSIDE MARKET DEVELOPMENTS: The week begins with heightened Middle East tensions. Iran claims that it struck a U.S. Navy warship in the Strait of Hormuz with missiles. CENTCOM confirmed Iran launched an attack, but said, “No U.S. Navy ships have been struck.”
U.S. forces retaliated, destroying six Iranian small boats that were involved in the attack. While the ceasefire has not been formally ended, with both sides firing on the other, the trade is understandably concerned.
With passage through the Strait being actively challenged by Iran, and the U.S. continuing its blockade, oil prices remain elevated near four-year highs. Brent crude continues to test above $120 per barrel.
Persistent inflation concerns are keeping dovish Fed bets in check, underpinning yields and the dollar. The greenback is also garnering safe-haven interest.
On Friday, President Trump threatened to raise tariffs on cars and trucks imported from Europe from 15% to 25%. This reamplifies trade uncertainty, adding to the bid in the dollar.
Markets will continue to react to Middle East headlines. Focus this week will also be on U.S. jobs data, culminating in Friday's nonfarm payrolls report for April. Consensus is currently +60k payrolls with the jobless rate steady at 4.3%.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$52.78 (-1.14%)
5-Day Change: -$158.01 (-3.38%)
YTD Range: $4,100.32 - $5,595.02
52-Week Range: $3,127.12 - $5,595.02
Weighted Alpha: +30.72
Gold is under pressure to begin the week amid heightened Middle East tensions, higher oil prices, and a stronger dollar. The yellow metal has notched a fresh four-week low but remains above the midpoint of the range that has emerged since the March low was established at $4,100.32.
With gold well below the 20-, 50-, and 100-day moving averages, the downside is seen as more vulnerable. If the midpoint of the range-within-the-range at $4,494.25 gives way, look for additional retracement to the 4,401.28 level. Below the latter, the rising 200-day MA at $4,299.85 and the $4,268.92 Fibonacci level would be in play.
While the short-term technical picture has deteriorated in recent weeks, the yellow is still up nearly 40% from a year ago.
Longer-term bullish factors such as central bank buying, structural demand, and de-dollarization persist, leading many analysts to target significantly higher prices later in the year.
The World Gold Council noted last week that central banks bought 244 tonnes of gold on a net basis in Q1, a rise of 3% y/y. Bar and coin demand surged 42% y/y to 474 tonnes, the second-highest quarter on record. Global ETF buying increased by 62 tonnes, tempered by sizable outflows from U.S. funds in March. Demand for gold used in technology grew by 1% to 82 tonnes, "fuelled largely by the continued growth in AI infrastructure."
Investment demand for gold now significantly exceeds fabrication demand. Weaker jewellery consumption, combined with surging investor interest, has markedly shifted the composition of global gold demand in recent years, according to the WGC, with investors playing a much larger role relative to traditional fabrication uses.
Given the record-high gold prices, jewellery demand faced pressure with volumes declining 23% year-over-year. However, total consumer spending on gold jewellery rose sharply by 31%, indicating strong positive sentiment and a willingness among buyers to purchase higher-value pieces even at elevated prices.
Overall, gold demand (including OTC) rose 2% to 1,231 tonnes in Q1. "This modest growth in volumes combined with gold’s exceptional price rise, generated a 74% jump in the value of quarterly demand to a record US$193bn, said the WGC.
Gold must regain the 100-day MA at $4,770.43 to set a more favorable tone within the range. Intervening barriers are marked by today's overseas high at $4,628.92, Friday's high at $4,659.44, and the declining 20-day MA at $4,709.44
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$1.996 (-2.65%)
5-Day Change: -$2.385 (-3.16%)
YTD Range: $61.036 - $121.630
52-Week Range: $31.701 - $121.630
Weighted Alpha: +101.97
Silver has retreated, weighed by heightened inflation concerns, dimming hopes for a Fed rate cut later in the year, a firmer dollar, and multi-week lows in gold. Gains late last week were limited by the 20-day moving average, leaving the white metal well contained within its recent range.
Silver notched its second consecutive lower weekly close on Friday, and April was the second straight lower monthly close. Given that silver remains below the 20-, 50-, and 100-day MAs and the positioning of those indicators relative to each other, the market remains vulnerable.
A retest of last week's low at $70.893, and a downside extension to the $70 zone must be considered. However, revived hopes for the ceasefire and peace process between the U.S. and Iran could change that quickly. Middle East headlines will continue to drive the market.
A short-term close above the 20-day MA would shift focus to last week's high at $76.950. A breach of this level would bode well for a challenge of the 100-day MA at $80.172.
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.