Happy Friday, traders. Welcome to our regular recap of the week’s headlines and macroeconomic data that mattered most to the gold and currency markets.
Gold prices are ending the week mostly flat to where they began trading on Monday, but it has been anything but calm. Swinging within a clearly marked band from $1460-1480, this was yet another week of precious metals trading dominated by trade negotiation headlines.
So, what kind of week has it been?
Monday’s Good Trade Mood Didn’t Last Long, and Gold Prices Edged Higher
Around the time of our Monday preview post, global stock markets were having a positive start to the week and gold prices were under a bit of pressure. Investors were cheering the developments over the weekend, focusing mostly on what looked like restraint from the Chinese in their response to US’ bill passed last week in support of pro-democracy protestors in Hong Kong; while there was some pointed threats of further action, Beijing’s initial salvo did not include any punitive trade measures.
That risk-on mood ended up being peeled away over the course of Monday’s news day. First, as we mentioned in the preview post, was news from POTUS that the US would levy new tariffs on Brazil and Argentina as a response to what the White House sees as unfair currency manipulation. Later in the morning, domestic matters raised concerns as the November vintage of ISM’s manufacturing PMI unexpectedly fell and remained in the contractionary territory below 50.0. It was the release of the manufacturing data that spurred a risk-off swing with the Dollar coming off slightly as gold spot prices rebounded above $1460/oz.
The shift in sentiment was amplified by a new round of tariffs threats from Donald Trump, this time aimed at France. In response to the possible imposition of a “digital tax” on corporations operating in France that POTUS and/or his advisors feel unfairly targets US tech giants, Trump suggested the US might levy tariffs of as much as 100% on over $2 billion worth of imports. The added tension would see safe haven assets bought higher, including another lift for gold prices.
Trump Threatens to Dig In, Gold Soars to $1480/oz
Even with the concerning trade headlines, there was a muted nature to the pull-back in risk appetite due to the positive tones being spoken around US-China trade negotiations. Things shifted again during Asia’s Tuesday session with the Chinese government’s release of an “Unreliable Entities” list—a precursor to possible trade sanctions against specific US firms. This wouldn’t be the act that saw trade fear overtake the market and bounce gold prices considerably higher (the yellow metal by now had established what looks like reliable support at $1460/oz,) but it would bring such an act about.
From NATO-related meetings in London, with most US traders just waking up for Tuesday’s session, Donald Trump pontificated to a bank of reporters that he might well be willing to wait until after the 2020 election—that’s, more or less, an entire year from now—before agreeing on a trade deal with China. Gold spot prices flew as high as $1470 on the initial reports, before trading to $1480/oz once markets opened in America.
Major US stock indices were in the red for a second consecutive session, and gold prices held just below $1480. As markets moved into Wednesday’s book of business, the trade gloom appeared to be growing as China vowed further reprisals for another sanctions bill that was passing through the US congress on Tuesday. The darkening mood brought the high-water mark for gold this week as prices briefly traded north of $1480’s resistance.
Rising Gold Prices Slowed as Reports Tried to Walk Back Trade Threats
Equity markets were desperate for any kind of rose-tinted trade news that would spur assert prices higher, and 2019 has been nothing if not 300+ days of equity markets getting exactly what they want. Global stocks rebounded and gold prices fell back to $1475/oz during European trading on Wednesday thanks to reports pushed by “people familiar with the talks” that Trump’s Tuesday comments about another 12 months of trade dramatics should not, in fact, be taken to mean that current discussions are on the rocks. Honestly, it’s not much to go on, but it was clearly all risk markets needed to trade as if all is right in the world. Despite an ugly ADP report that counted just 67k private sector jobs added in November vs. expectations for roughly 140k and another PMI disappointment from the service sector reading, stocks won the US session for the first time all week.
For Thursday (and, so far, Friday,) the trade headline freneticism calmed a bit, but gold prices (among other safe-haven assets) had their choppiest trading of the week as investors tried to accurately price short- and medium-term risk based on Tuesday and Wednesday’s developments. The chop allowed the yellow metal another attempt at breaking resistance at $1480, which it failed to do; what appeared to be technical selling in response to this failure saw prices settle back to $1475.
November Jobs Report Tops Expectations, Gold Prices Have Collapsed to Support
After all the fear-based trading that drove gold prices higher to start the week, this morning’s blockbuster November Jobs Report essentially hit the reset button. Against expectations for 180k jobs-added last month, the Labor Department reported a blowout +266k while also revising October’s number higher. At the same time, impossibly, the headline unemployment rate dropped back to 3.5%.
The data makes additional rate cuts from the Fed seem unimaginable in the next six months. The immediate reaction on the gold chart was for spot prices to drop below $1470 and, once US markets were open for trading, all the way back to support at $1460/oz. Adding weight to gold’s anchor, the latest reading of Consumer Sentiment from the University of Michigan this morning registered a seven-month high.
So far, as we trundle towards the weekend, that support at $1460 seems to be holding, although there’s always the risk that it could be dented by profit-taking sellers.
Looking into next week, while there’s an opportunity for a new look at CPI inflation data to disappoint and lift gold prices the main focus will be on the last FOMC meeting of 2019. A no-moves meeting is virtually set in stone at this point, but being a quarterly meeting means it also brings updated economic projections from the Fed. Just as importantly, perhaps, it’s hard to shake the feeling that markets are always just one negative trade headline away from spiraling again.
All of that can wait until next week, of course. For now, get out there and enjoy your weekend, traders. I’ll see everybody back here on Monday for a look at the week ahead.