US-Iran Tensions Rise Amid Reports of a Strike Deadline

The de-escalatory remarks From Trump aren’t necessarily new, but heading into the weekend, the market is trying to gauge where Trump’s head is at, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Any signal that he may lean toward diplomacy rather than military action creates immediate selling pressure,” she added.

Source: Bloomberg

A new Dutch government is rapidly taking shape after the social liberal D66, Christian Democrats (CDA), and liberal conservative VVD parties reached a coalition agreement. With the cabinet expected to be assembled and in place by the end of next month, this formation period is proving significantly faster than in previous election cycles.

However, the incoming government faces a major hurdle from day one. Holding only 66 of the 150 seats in parliament, it will operate as a minority government—a new dynamic for Dutch politics. This setup means the coalition must build a majority by winning over opposition parties for every policy it wants to pass.

A Pro-Business Playbook for Growth

The coalition's economic agenda is firmly pro-business, even with tax increases planned to fund higher defense spending. Key pillars of the plan include:

• Lowering energy costs for Dutch manufacturers.

• Providing subsidies to support the transition to green energy.

• Allocating additional funds for housing to boost the construction sector.

• Tackling high nitrogen emissions through financial support for farmers who voluntarily cease operations.

The government also intends to cut regulatory burdens for businesses and maintain favorable conditions for expats. By reversing previous cuts to the science and education budget, the agenda supports long-term innovation. The coalition is actively targeting a structural GDP growth rate of 1.5%.

Balancing the Books: Defense Up, Social Spending Down

Despite significant new spending on defense, the Netherlands is on track to keep its budget deficit within the EU's 3% of GDP limit. Government debt is already well below the 60% debt-to-GDP target, positioning the Dutch as one of Europe's most fiscally disciplined nations.

This fiscal balance comes at a price. To offset the increased defense expenditure, the government plans large cuts to healthcare spending, primarily through higher co-payments. Social security will also see reductions, while both households and businesses will face higher taxes. Longer-term spending plans are also expected to add budgetary pressure beyond the upcoming government period.

A More Cooperative Stance on Europe

The incoming government is poised to adopt a more positive and cooperative approach toward the European Union. While it still denounces Eurobonds, its definition is narrow, focusing only on the pooling of national public debt.

Crucially, the coalition remains constructive toward existing common financing instruments—a notable shift from the previous government. It also expresses support for strengthening the capital market and banking unions.

An Ambitious Political Experiment

The Netherlands is set to have a new government in short order, armed with an ambitious agenda focused on business competitiveness, increased defense spending, and strict fiscal management. The coalition’s success, however, will hinge on its ability to negotiate and win support from the opposition. A new political experiment is just beginning.

Gold and silver prices just experienced a stunning sell-off, with gold dropping over 10% and silver plummeting more than 30% ahead of the weekend. This historic volatility comes just two days after gold posted its largest one-day gain on record.

But for market analysts, this violent price swing was no surprise. After an explosive January that saw gold soar 29.5% to a high of $5,602 an ounce and silver skyrocket 68.5% to an intraday record above $121, both precious metals were seen as significantly overextended. This kind of momentum, especially within the first month of the year, was never going to be sustainable.

Figure 1: Gold and silver prices corrected sharply after a massive January rally, but analysts suggest the underlying bullish trend remains intact.

An Overextended Rally Hits a Wall

Analysts widely agree that the sell-off was a necessary technical correction. "The past couple of days have been incredibly volatile for metals across the board," said Neil Welsh, Head of Metals at Britannia Global Markets. "The pullback is probably not unexpected given the speed and magnitude of January's rally. Gold and silver had become technically overextended."

Welsh noted that positioning, leverage, and options activity had reached levels typically associated with short-term peaks.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, added that the rapid gains made trading conditions difficult, thinning out liquidity. "Market makers have grown reluctant to take and hold risk, resulting in thinner liquidity and wider bid-offer spreads," he explained. Hansen described the gold market's recent behavior as shifting from "the adult in the room to behaving like an angry teenager, just like silver."

Matthew Piggott, Director of Gold and Silver at Metals Focus, called the January rally "irrational exuberance" and framed the current sell-off, while extreme, as a healthy market correction.

Why the Long-Term Trend Remains Intact

Despite the brutal selling pressure, most analysts believe the fundamental uptrend for precious metals has not been broken. While cautioning investors against jumping back in too quickly, they expect buyers to step in and support prices at lower levels.

"I believe the broader trend remains intact," said Welsh. "The macro forces that drove gold, silver, and copper are still firmly in place. This episode appears to be a positioning correction within an ongoing uptrend, not the end of one." He expects precious metals to remain well-supported through 2026, though with wider trading ranges.

Hansen maintains that gold still has a potential path to $6,000 an ounce by the end of the year.

The core bullish case rests on persistent global uncertainty. "At any moment, we could see an unpredictable policy decision instantly upend the status quo again," Piggott noted. "As long as that threat remains in play, it will continue to drive bullish sentiment in gold and silver."

Key support levels to watch include $4,600 an ounce, according to Ipek Ozkardeskaya at Swissquote, and an initial support at $4,700, according to Alex Kuptsikevich at FxPro. Ozkardeskaya added that pullbacks will likely be seen as buying opportunities, as the primary drivers—G7 debt, a weaker U.S. dollar, and geopolitical tensions—are still in play.

The Federal Reserve Wildcard

Adding a new layer of complexity is a potential shift at the U.S. Federal Reserve. President Donald Trump announced Kevin Warsh as his nominee for the next Fed Chair. Warsh, a former Fed governor, is known as an "inflation hawk" and is expected by some to bring a more nuanced approach to monetary policy, according to Charlie Ripley of Allianz Investment Management.

However, analysts believe Warsh is unlikely to defy Trump's public demand for lower interest rates. "The U.S. president has made it sufficiently clear that he wants to see significantly lower interest rates," said Thu Lan Nguyen, Head of Commodity and FX Research at Commerzbank. She predicts the Fed would likely yield to pressure and cut rates more than the market currently expects, which would keep gold prices well-supported.

Economic Data Complicates the Fed's Next Move

Current market pricing reflects this uncertainty. According to the CME FedWatch Tool, traders see the first rate hike of 2026 in June and are only pricing in two cuts for the entire year.

Some institutions are even more hawkish. Economists at BNP Paribas now expect the central bank to keep interest rates unchanged at the current 3.5%-3.75% range throughout 2026, citing solid economic growth.

Meanwhile, fresh inflation data complicates the Fed's path. The U.S. Producer Price Index (PPI) for December jumped 3.0% year-over-year. Core PPI, which excludes food and energy, rose 3.3%, suggesting inflation is becoming more embedded in the economy. This data muddle interest rate expectations ahead of a busy week of economic reports.

Key Economic Events to Watch

• Monday: ISM Manufacturing PMI, Reserve Bank of Australia monetary policy meeting

• Tuesday: US JOLTS job openings

• Wednesday: U.S. ADP employment data, ISM Services PMI

• Thursday: Bank of England and European Central Bank monetary policy meetings, US jobless claims

• Friday: US Nonfarm Payrolls, University of Michigan Preliminary Consumer Sentiment

Oil prices edged slightly lower on Friday, consolidating gains near six-month highs as the market continues to be swayed by persistent geopolitical tensions between the United States and Iran.

Brent crude futures settled at $70.69 a barrel, down a marginal 2 cents, or 0.03%. Meanwhile, U.S. West Texas Intermediate (WTI) crude ended the session at $65.21 a barrel, a decline of 21 cents, or 0.32%. Despite the small dip, both benchmarks are set for their largest monthly gains since 2022.

US-Iran Standoff Dominates Market Focus

The primary driver for oil markets remains the tense situation involving Iran. "It's really all about Iran right now," said John Kilduff, a partner with Again Capital. "The market had priced in a lot of geopolitical risk on Iran, but it's difficult to quantify the market at this point."

Prices had surged to their highest levels since early August on Thursday after reports that U.S. President Donald Trump was considering actions against Iran, including targeted strikes, which heightened concerns over potential supply disruptions.

While both nations have since indicated a potential willingness to engage in dialogue, significant hurdles remain. Tehran stated Friday that its defense capabilities are not up for discussion. Adding to the pressure, the U.S. issued new sanctions targeting seven Iranian nationals and at least one entity as it reinforces its military presence in the Middle East.

Phil Flynn, a senior analyst with Price Futures Group, noted that the recent price gains have paused amid "prospects of a chilly ceasefire between Russia and Ukraine and the possibility that an attack on Iran might not occur."

Economic and Supply Factors Add Pressure

Beyond the geopolitical arena, other factors are beginning to weigh on oil prices.

Dollar Strength Creates Headwinds

A stronger U.S. dollar, which rose from four-year lows, put some pressure on crude. The dollar gained strength after President Trump announced he would nominate former Federal Reserve Governor Kevin Warsh to lead the central bank once Jerome Powell's term concludes in May. A stronger dollar can curb demand for oil by making it more expensive for buyers using other currencies.

Global Supply Picture Shows Easing

Signs of increasing oil supply also contributed to the shift in market sentiment. Key developments include:

• Rising U.S. Production: American crude oil output is recovering following recent shutdowns.

• Kazakhstan Resumption: Production at the Tengiz oilfield is nearing a restart.

• Russian Maintenance: Russia's primary oil refining maintenance periods are expected this month and again in September.

"Given the week's bullish performance, it is reasonable to expect some profit-taking ahead of the weekend," said Tamas Varga, an analyst at PVM Oil Associates.

Analyst Outlook: Oversupply vs. Geopolitical Risk

Looking ahead, market analysts are balancing the risk of supply disruptions against the prospect of oversupply. A Reuters poll of 32 analysts concluded that most expect oil prices to hold near the $60 per barrel mark for the year, reflecting this delicate equilibrium.

Germany’s inflation rate accelerated in January, challenging the European Central Bank’s decision to cut interest rates just one day prior.

Official data released Friday showed consumer prices in Germany rose by 2.1% last month, an increase from the 2.0% rate recorded in December. The figure surprised analysts who had anticipated that inflation would remain unchanged.

The timing of the data is critical. On Thursday, the ECB lowered its key interest rate by a quarter percentage point to 2.75%, marking the fifth consecutive reduction since June. Despite the cut, central bank officials described their policy as "restrictive" and suggested that further reductions could be on the table.

Eurozone Economy Shows Surprising Strength

The slight uptick in German inflation, Europe's largest economy, comes as the broader eurozone demonstrates unexpected resilience. Inflation across the currency bloc has stabilized near the ECB's 2% target, and consumer surveys indicate expectations for prices to continue rising at a similar pace over the next year.

Economic growth in the final quarter of 2025 exceeded forecasts across major economies:

• Spain: 0.6% expansion

• France: 0.5% expansion

• Germany: 0.3% expansion

• Italy: 0.1% expansion

The overall eurozone economy grew by 0.3%, matching Germany's performance.

Interest Rate Forecast: Stability Expected Through 2027

Despite the conflicting signals from inflation and growth, the market consensus points toward a period of policy stability. Most economists predict that the ECB will hold borrowing costs steady at their current level through at least the end of 2027. Previous speculation about a potential rate hike in 2026 has largely subsided.

This view is echoed by key policymakers. Joachim Nagel, President of Germany's Bundesbank, recently stated there is no immediate need to adjust interest rates, though he cautioned that long-term predictions are difficult.

The ECB's upcoming meetings will force officials to weigh the minor increase in German inflation against the region's recent economic strength, all while navigating ongoing concerns related to trade and the war in Ukraine.

Source: Reuters