Gold futures soared to $3,100, but will this rally hold? Silver and copper have a strong opinion.
Gold and silver are rallying today, with gold futures pushing to around $3,100 and silver even moving to new highs. At first glance, this might appear bullish, but a closer look reveals several critical warning signs.
Silver's Deceptive Strength - A Classic Warning Signal
Silver's sudden outperformance relative to gold is not a positive development in the current context. In fact, this pattern is a classic end-of-rally signal we've seen repeatedly throughout history. As I've emphasized in previous analyses, silver is notorious for exhibiting fake breakouts right at the end of precious metals rallies.
Copper's Invalidation - A Powerful Technical Signal
Perhaps the most compelling technical development today is copper's invalidation of its recent move to new highs. This is a textbook sell signal that perfectly aligns with my yesterday’s analysis of the tariff effect on commodity markets.
Namely, the initial reaction is likely bullish, but the ultimate outcome is bearish.
Given how much has been said and written about tariffs recently and how much spotlight they got, today’s invalidation sends us a message:
“Enough is enough.”
The temporary rallies can only last so long. The momentum was strong enough to take copper to new highs, but the real test comes with time – will copper be able to hold? Yesterday, I wrote that I doubted that. And indeed – copper failed to hold onto its gains, which – especially compared with the shape of yesterday’s candlestick (powerful daily reversal) created a strong sell signal.
Yesterday, I pointed out the striking similarity between copper's current pattern and previous major tops in 2008 and 2022:
"That's how copper topped in 2008 and that's how copper topped in 2022. In 2011, there was also a final attempt to move higher, but back then there wasn't enough strength to move to a new high.
Either way, copper's final tops aligned with major tops in the precious metals market -- in particular ones in mining stocks and silver (and the orange, vertical lines show that)."
Today's invalidation of copper's breakout reinforces this analysis, suggesting that the commodity surge fueled by tariff concerns is over. And since the major moves in copper and the precious metals sector tend to align, this tells us a lot about the (lack of) sustainability of today’s rallies.
Trump's Auto Tariffs Escalate Trade Tensions
The market backdrop for these technical developments is significant. President Trump has just signed an executive order imposing 25% tariffs on all foreign-made vehicles, set to take effect on April 2nd - his so-called "Liberation Day."
This represents a major escalation in trade tensions, with Trump warning the EU and Canada they will face "far larger" levies if they work together "to do economic harm" to the US. Both trading partners have already announced retaliatory measures.
This development perfectly aligns with our March 5th analysis of the impact of tariffs on markets, which detailed how tariff announcements typically create temporary market distortions before the true bearish implications become evident.
Fed Officials Signal "Uncertainty"
Adding to the complex market environment, Federal Reserve officials have suddenly adopted a new favorite word: "uncertainty." Fed Chair Powell used the term 22 times in his recent press conference, while New York Fed president John Williams delivered a speech literally titled "Certain Uncertainty."
This language shift directly relates to concerns about Trump's tariff policies. Fed officials have revised their inflation outlook higher and economic growth projections lower, citing tariff-related uncertainty as a primary factor.
The potential for stagflationary conditions is rising, with Apollo's chief economist noting: "The Fed is worried that the ongoing stagflation shock is going to intensify further."
USD Index Maintains Strength
Despite today's small pullback, the USD Index rally remains firmly intact. Yesterday's analysis highlighted the technical significance of the invalidation of the move below the 61.8% Fibonacci retracement level:
"The invalidation of the move below the 61.8% Fibonacci retracement level is a classic buy signal. This, plus the tariffs' real implications for the USDX, creates a very bullish picture for the latter."
The USD Index's resilience in the face of today's tariff announcements further confirms that the bottom is likely in, setting the stage for a stronger dollar and corresponding weakness in metals.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief