Happy Friday, traders. Welcome to our weekly market wrap, where we 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 other key correlated assets—and may continue into the future.
At the end of a week that has been more energetic and, at times, tumultuous than anticipated for the yellow metal, gold has continued to hold a strong position and consolidate most of the gains made in 2023 so far.
So, what kind of week has it been?
The first-read “advance” report on GDP growth for the US economy during Q4 of last year had a much larger impact on the gold markets than we had expected it to this week. Not only in the overall market reaction to the data but in the lead-up to it as well.
Monday and Tuesday’s trading was mostly par for the expected course. With little in the way of key economic data or market-moving headlines—not only was the data calendar light, but the FOMC (which has been the only really reliable exogenous mover of the Dollar or gold market for months) has been observing the one-week “quiet period” ahead of the February meeting and interest rate decision—gold had little to directly react to and trended mostly-sideways alongside $1930/oz. The US Dollar, meanwhile, slowly weakened. The only notable blink from the gold market came in the early hours of Tuesday’s trading, when a sharp rise in US Treasury yields surprised the markets, spurred in part by data out of Europe seemingly setting the table for a large rate hike from the ECB. Under acute pressure, gold prices briefly dipped as low as $1920 that morning, but, thanks to support from the relatively weak US Dollar, the slide was arrested fairly quickly, and the yellow metal was back above $1935/oz before lunchtime.
Wednesday brought the real peak of action—and trade price—for the gold market. Investors, more nervous than expected about either what the Q4 GDP print (and other data) might reveal about the health of the, or how it might impact the Fed’s policy path through 2023, or, most likely, a combination of both, sent the US Dollar even lower midweek. Enjoying a rush of tailwinds to carry it in the other direction, gold spot price climbed steadily higher through the day before peaking and flattening-out Wednesday evening in the neighborhood of $1947/oz and a nine-month high.
Though the midweek session hinted that gold might be about to take another strong leg higher in this first month of 2023, it ultimately only made for a steeper fall. The GDP print for Q4 was healthier than most expected on Thursday morning, with the headline number reporting growth of just under 3% QoQ, where the consensus projection was only just above 2.5%. “The US is not in recession” was one of the most common headlines and refrains. Following the pre-market reporting, US stocks climbed steadily higher from the opening bell. Equities went on to make solid gains through the session, never appearing to flag as a result of concerns about the Fed reaction function. Gold prices, meanwhile, stumbled and slid as the strength of the US Dollar and yields for US Treasury paper climbed alongside the Dow, S&P, and NASDAQ.
For what seems like the first time in quite a while, gold—a stalwart safe haven trade—was pressured lower by a mostly pure upside optimism from investors without being more directly weakened by the question of “what does this mean for the Fed?” Perhaps because of this dynamic, gold’s floor on Thursday (and for this week in general) remained relatively high. There appears to be an eager reserve of buyers and investors who read the yellow metal as “cheap” near $1920/oz and have quickly stepped in to provide support.
Next week, we get to learn definitively “what does this mean for the Fed?” at least for the immediate future, as Jerome Powell & Co. will announce the most recent interest rate decision—expected to be another hike of 0.25-0.50%-- on Wednesday afternoon. For those who key into macroeconomic data in tracking the gold market and other assets, we’ll really be going from 0-160 as next week also closes with the January Jobs Report.
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.