Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.
An energetic trading run for gold is coming to a close with the yellow metal having given back a majority of its mid-week gains, but still well into positive territory for the week.
So, what kind of week has it been?
Although this week of trading will get compressed over time to represent only a modest (if promising) price gain from open to close, the yellow metal’s path over five trading days has included a few aggressive swings. Gold price continues to be heavily influenced by key correlated assets like the US Treasury market and the Dollar Index as has been the case in recent weeks, but we also saw of one of gold’s historical investment functions—gold as a hedge against inflation expectations—return to relevance and leave a meaningful impression. Looking back over the trading sessions since Wednesday, it’s clear that this midweek flow into gold positions is to thank for the yellow metal’s weekly price pickup.
After markets were tentative and lethargic to start the week with investors still lacking conviction following the September Jobs Report, the initial reaction to September’s consumer inflation readings was strongly negative for gold. Core inflation in the US reported in-line with expectations—remaining elevated on a year-over-year basis (+4%) and mild in the monthly comparison (but higher than 4 weeks ago—but the more volatile “headline” CPI numbers came in above projections.
This was enough, in many investors’ minds, to cancel-out any real chance that last week’s poor labor market data might give the Fed reason to pause on plans to begin a taper next month. In reaction, the US Dollar continued its autumn bull run and took a sharp leg higher. Gold prices, which had been up earlier in the pre-market hours, fell quickly in proportion.
Before what looked like a sell-off in gold could get to speed, three factors came to arrest the slide and turn the precious metal’s trajectory meaningfully higher:
- There were investors happy to step into gold positions as low as $1760, setting a line of support on the chart. From there, prices were already enjoying a corrective rebound ahead of the cash market open in New York.
- Prior to the CPI release gold had been enjoying a lift higher alongside US Treasury bond prices, which we advancing while investors repositioned following Tuesday’s news that the US legislature had narrowly agreed to a less than courageous extension of the Federal debt ceiling (only to December.) This trend was taken back up once US markets opened for the day: with a much greater velocity, US Treasury yields began falling and gold prices rose in response.
- Amplifying this second input, surely, was gold’s attraction as a traditional hedge against medium- and longer-term inflation worries which—despite Wednesday’s CPI report commonly being referred to as a “mixed bag”—were clearly at the forefront of investors’ minds and projections thanks to the threat of persisting supply-chain disconnects keeping supply low and inflation high.
- US bonds often share this function with gold, and so their rallies were accelerated as well, with the benchmark 10-year yield falling towards 1.5%.
Gold spot prices rode the rising tide through late Wednesday morning, before the rally slowed just above $1790/oz. For the rest of the day, and into Thursday’s trading, prices consolidated the majority of the days (somewhat over-extended) gains at a four-week high.
With overseas markets given the opportunity to feel-out Wednesday’s price trends and digest the US inflation data and FOMC minutes, gold was given a brief opportunity to rise to $1800/oz in the early hours of Thursday morning; but resistance at that round psychological number was (and is) apparent.
Gold’s recent flush of sensitivity to the US Treasury market didn’t begin and end with a positive influence on the yellow metal, of course. After gold held serve through Thursday’s sessions, the start of Friday trading in Europe brought about what looks to be a corrective selling-off of this week’s bond market rally—a move that has continued through this final trading day of the week.
- Both trends (rising Treasury yields and slipping gold prices) were mild but steady in the European morning before accelerating as US traders and managers took the stick to close the week. As the 10-year yield surged well above 1.5% once again, gold prices dropped back below $1770/oz just ahead of the market open.
- Some degree of investor disappointment at gold’s inability to push above $1800 likely made an easier case for closing out gold positions at this point as well.
Once again, though, plenty of investors seemed happy to buy into new gold positions above $1760/oz. This support not only stalled gold’s fall once again, but represents at least a modest price improvement compared to the week prior and may provide gold with a positive base to build off of next week.
The week ahead isn’t offering us much in terms of headline economic data, and the Federal funding fight once again shifts to bickering over the size of fiscal spending packages rather than having to avoid a damaging default. This should put a focus on any news coming out of the Fed next week; which we still expect is planning to begin its facilities taper next month. It also, likely as not, means another week in which gold’s price trajectory will be seriously impacted by the path of the US Treasury market.
For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.