It’s a rough day in the precious metals market and one of the most-concerning ones of the year.
Gold and silver have often traded inversely to oil during the conflict. There is/was a big risk that countries would have to sell gold reserves in order to pay for oil imports or to support currencies if oil traded +$150/barrel. This already happened early in the war with Turkey selling $120 billion in gold.
Today though, oil is down 3.5% and precious metals are still under pressure. Gold is down 1.9% and silver down 4.3%. Bot hare now challenging the war lows.
I think a big part of the move is a broader re-risking event, punctuated by the declines in high-flying chip stocks and the Nasdaq in general. Unfortunately, gold is getting dragged down with that but given that stocks have run up so far, there’s more risk of downside ahead.
In terms of catalysts, gold and silver could use an end to the war. Trump has been saying it’s imminent for two months now and there just isn’t any sign that’s true. It can all change with a phone call though.
Another possible negative catalyst is this week’s CPI report. If we get hot US prices, expect more talk of the Fed being forced to hike rates, and sooner than the December pricing in the market currently. Kevin Warsh will be repeatedly asked about controlling inflation in his first press conference and any slip up on the hawkish side could boost USD and punish precious metals.
Technically, I don’t like the series of lower highs since the peak in January and if $4100 gives way, the downside could be significant. At the moment, the 200-day moving average is breaking and that’s also an ominous sign
