Financial Markets (Just2Trade)
Trump tariffs, gang war violence spike silver
Gold and silver prices traded resolutely higher on
Friday, with three main news items driving the rally. First, the Supreme Court ruled that Trump’s IEEPA tariff policy
was illegal, and that he had no justification to unilaterally impose tariffs. According to CNBC, this could leave the Trump
administration liable for up to USD 170 bn in refunds, opening the door to litigation for the rest of his presidency and raising
the odds that even more fiat currency will have to be printed to clean up the mess caused by this policy nightmare. Gold and
silver thrive on such monetary madness and both metals spiked higher on the back of this news. Trump challenged the Supreme
Court ruling, doubling down on his tariff agenda and signing a 10% flat global tariff on top of the levies already in place.
We think this monetary mayhem might set the stage for Trump to preside over a US monetary reset before his term expires.
The reset could see silver and gold massively revalued upward to repay the US sovereign debt.
In the second place, market participants remained
on edge as Middle East tensions were still running high, with rumors of a long military campaign that could start as soon
as Russian and Chinese naval exercises end, presumably in 10-14 days.
And thirdly, in the face of uncertainty across the board, investors were
reluctant to short gold and silver and were looking for insurance over the weekend, as anything might happen during the two-day
weekend pause. This factor also reflects that the Shanghai Gold Exchange reopens on Tuesday after a long hiatus due to the
Lunar New Year celebrations. Of the various drivers, the latter could be the most important as many players expect this market
to gap sharply higher after Chinese authorities imposed the new margins requirements last week to shake out speculative positions,
while declaring war on paper silver.
As for the price action, spot silver rallied 7.6% on Friday to USD 85.34. Spot was up 10.3% on the week
or USD 6.1 higher in dollar terms. Turning to the COMEX, March silver futures opened at USD 78.5 and trading in a daily range
from USD 78.5 to USD 84.6. The white metal closed at USD 84.5, up 8.9% on the day. Open interest dropped to 47,847 down only
a tad from the previous 47,900 contracts as players position themselves before the March contract settlement period starts
later this week. Many of these positions could opt to stand for delivery, a factor creating huge stress on the COMEX, which
could see vaults empty within the next few months. The gold-silver ratio (GSR) currently stands at 59.5:1. A reading below 60 is attractive
to institutional buyers.
In market news, UBS forecasts demand rising slightly
to 1.34 bn oz in 2026, while supply will increase modestly, leaving a deficit of about 293 mn oz. The headline reads: UBS:
‘favors being long silver’, raises outlook, as reported by Gold Seek / Silver Seek.
In other news, civil unrest in Mexico is seen as further disrupting
silver production and supply as the state’s war against the drug cartels recently escalated in Puerto Vallarta and Guadalajara
after the Mexican state killed El Mencho, the most wanted man in Mexico and the leader of one of the most powerful cartels,
Jalisco New Generation (CJNG). The cartels have set off
massive fires in the above cities to block military operations.
As we reported earlier, 10
employees of Vizsla Silver Corp, a Canadian-owned silver and gold mine were abducted in Sinaloa in late January. Most residents of these towns have fled
out of fear as two factions of the Sinaloa Cartel have been locked in battle since September, 2024. Others have been “invited”
to leave. Vizsla was forced to halt silver
production last April because of security concerns in the area. Silver mines have long attracted the attention of organized
crime in the country and the latest wave of violence is seeing more street violence, extortion, shutdowns of mines and thefts
of silver. Mexico is the world’s biggest producer of the white metal, accounting for about 25% of global output,
and this news will further disrupt production and limit supplies to the global market, which have already been essentially
outlawed by the Mexican President Claudia Sheinbaum. Sunday’s upsurge in violence is a factor behind the uptick in prices
we are seeing today.
Geologically speaking, Mexico is
located on the dynamic ‘Ring of Fire’ that traces boundaries of several tectonic plates. There are mountainous
regions across Mexico, most notably the Sierra Madre Oriental, Sierra Madre Occidental and Sierra Madre del Sur. These mountain
chains are related to Mexico’s endowment of natural resources: ‘Gold and silver mineralisation is commonly linked
to the two belts of hydrothermal veins and gaps that stretch out underneath both sides of the Sierra Madre Occidental’,
according to Fresnillo.
Technical analysis
Friday’s technical setup looked like an inverted head-and-shoulders pattern, but it now appears that
silver is breaking out of a symmetrical triangle that arose after the huge late-January smack-down that saw the white metal
lose up to nearly 50% of its value, and down 35% in one day. Both patterns imply a bullish trend that should carry over into
the upcoming week. Silver dipped as low as USD 64/oz, but this morning the metal is back above USD 85. The 1-day chart, as
shown below, is even more bullish. The price action is well above the 200-day moving average, the slope of the MA continues
to be upward, implying that silver is still in a bull market despite the January correction. In addition, the RSI stands around
50, showing ample room for upside, with oversold pressure in decline. Accumulation distribution remains high, suggesting that
the longs are not being divested, but are continuing to accumulate further. The weak, leveraged hands have been shaken out
and the playing field now looks set for a more sustainable run, meaning that we could be back above USD 100 perhaps by March.
Spot silver rebounded from the strong support at USD 72. The strong weekly candle and the base
formation above the major USD 64 support implies that the silver price is preparing for a new leg higher. The next move will
likely be much stronger after the breakout above USD 120. Resistance lies at USD 100, and we believe a breakout above USD
100 is likely to happen when the SGE reopens tomorrow morning. As for gold, the yellow metal has broken out of USD 5,100,
opening the door to USD 5,600 and then USD 5,700. The latest rally will see the two metals rising in tandem, and we see silver
again outperforming gold to the upside. Silver was slightly lower heading into the open of European trading.
Source: The
Wall Street Journal
