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 to into the future.
At the end of a much more tumultuous week than anyone could have expected, gold is on its way up and climbing ahead of a key inflation report next week.
So, what kind of week has it been?
It’s been a more interesting week than expected for gold and connected asset classes, to be sure. We’ve seen three examples of events that can impact gold trading in the immediate term as well as how traders and investors project gold to perform in the near- to medium-term. Two of them—key communication from the Federal Reserve via the Fed Chair’s semiannual testimony to congress and a monthly Jobs Report—are key inputs for the gold market that we’ve certainly become accustomed to accounting for over the last 18 months. The third has been a surprising outlier but has certainly left its mark on the yellow metal’s chart at the end of the week.
While it’s technically a two-day affair, Fed Chair Jerome Powell’s twice-annual visit to The Hill lands most of its blows for or against the markets on the first day—day two tends to be rinse-and-repeat from thereon. This week was no exception, as a glance at gold’s chart shows spot prices rolling off the table on Tuesday morning. Having held a steady line through most of Monday’s trading, there was some pre-Powell positioning that tugged gold spot from $1850 to $1840/oz in the overnight sessions, and then with the start of US market trading just before the text of Powell’s opening remarks hit the transoms, Spot collapsed another $30 or so before support stepped in to bid for the yellow metal around $1820.
The thrust of Powell’s comments was not any kind of surprise, really, nor was the reaction in gold, nor in the Dollar, nor in the bond market, nor equities. As Powell skied along a double track of affirming that no decision has been made yet about redoubling interest hikes (to +0.50%) at the next FOMC meeting but also making clear the committee certainly has the will and appetite to do so, bond prices floundered along with gold on Tuesday morning. The benchmark 10-year yield again rallied aggressively towards +4% as the US Dollar also strengthened. US stock slid by more than -1.25% across all major indexes.
Once the metals market was given a breather to absorb the blows from Powell’s Congressional testimony and resolute refusal to budge, prices mellowed on Wednesday and rode a steady line, consolidating above what looks like a thick level of support and buyers at $1820. The sideways trading only held court through the midweek session, as a Thursday surprise would jolt gold traders back into more activity; but we’ll come back to that shortly.
The other big input for gold prices this week that we had on our radar was Friday morning’s release of the February Jobs Report. In another of the least surprising “surprises” on record, the NFP number again outperformed the consensus expectation. This time, by more than an additional 100,000 new US jobs. Although the signal will be a little buddied by an unexpected increase in the (still historically low) unemployment rate, we would have expected this to be a mostly negative signal for gold prices. On the one hand, signs of a resilient labor market (implying a strong economy) are rarely ever a boon for safe havens like gold; on the other, the continuing health of the labor market suggests that the Fed can continue on its plan to keep rates higher for longer because while it may wreak havoc on risk assets like stocks, the US consumer still has a job.
We can’t say for sure, however, if this is how investors would have traded the Jobs Report, all else being equal—because it most certainly was not. It’s been a long time—back to the Russian invasion of Ukraine, it seems—since a true exogenous shock drove a flurry of activity in the gold market. The sudden instability of Silicon Valley Bank that was revealed on Thursday and the institution’s eventual collapse on Friday has emphatically delivered one. The initial news broke on Thursday morning and, brushing off any downward pressure that an aggressive fed might put on commodity prices, traders and money managers rushed into the risk-off safety of gold, driving spot prices back to $1830 and higher. On Friday morning, as it looked more likely that a relevant financial institution would be shuttered by Federal regulators, gold prices spiked again—this time to $1860 and above. By the time headlines and confirmation finally came on Friday afternoon that SVB was being taken over by the US government, the gold market had primarily been priced into gold and the Dollar. Friday’s newsflow and the flurry of trading and noise it pushed into the gold market washed out any clear link between the February Jobs Report and gold prices.
We would typically look to next week for an opportunity to watch and prove out how gold will digest the news of late this week—or news that may develop over the weekend. However, heads will be turned quickly again, as next Tuesday brings a new data set on consumer inflation in the US, which may well return the Fed to front-of-mind for metals markets.
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 next week.