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Slow measured gains as an inflation focus settles in

Commentaries & Views

By a process of elimination, the gold and silver rallies on Tuesday are thought to be the result of inflation fears. Gold and silver had not been particularly sensitive to inflationary developments, but they had been greatly impacted by Treasury yields, the dollar, and at times the oil market. Yesterday's gains were impressive considering they were forged in the face of outside market adversity. The trade is likely to continue to factor-in the potential for a hot CPI report for Thursday. Expectations for the report call for a gain of 0.5%. Some economists see the annualized inflation rate coming in at 7%, with several forecasts revised upward following last Friday's payroll surprise. Lost in the shuffle is a World Gold Council paper touting a recovery in physical gold demand in China. Investment interest was also judged to be improving, with inflows into gold ETF instruments in January reaching the highest level since May 2021. They increased again yesterday by 258,203 ounces and are now up 1.6% on the year. Even more significant is a 2.2-million-ounce inflow into silver ETFs, which brings the year-to-date gain to 1.7%. Silver saw a very large inflow on Monday, which combined with the large inflow yesterday is creating bullish investment buzz. Another bullish development came from commodity price views from Goldman Sachs. We see the path of least resistance pointing upward but are skeptical of gold's capacity to rally significantly against negative outside market action. The Perth mint reportedly posted near record silver sales in January of 2.4 million ounces. With the upside breakout in March silver yesterday putting prices at an 8-day high and stochastics shifting into a "buy" mode, silver appears to be capable of trading up along with gold.


The near-term bias is pointing up in gold and silver as the markets have been able to discount bearish outside market influences (a rising dollar, a significant correction in energies, and moderations of the Ukrainian standoff) and are seemingly beginning to embrace the possibility of inflation. Therefore, we see the markets continuing to buy the rumor for Thursday's CPI report until its release. Support in April gold today is seen at $1,825 and $1,821.20. Close in support for March silver is seen at $23.025 and $22.875.

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