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.
Gold and silver prices are solidly higher to close a week that has seen gold’s value benefit from investors’ outlook for major US fiscal stimulus that has lifted the broader commodities complex, as well as a still weakened US Dollar.
So, what kind of week has it been?
Healthy Equities, Lagging Dollar Gave Gold Prices the Headroom to Rise this Week
Gold’s start to the holiday-shortened week was a mellow one, as a lot of traders and investors were sitting on their hands ahead of Wednesday’s inauguration ceremonies. There was a bout of precious metal selling around the start of cash trading in US markets, but gold prices early on demonstrated a strong level of support at $1830/oz. The yellow metal would go on to trade mostly flat to $1840 through the day while silver went for just below $25.25/oz in the spot markets.
Meanwhile, US equity markets seized their first opportunity to rebound from Friday’s losses, lead higher by some exceptionally strong bank earnings. Right away it was clear that the tone of investor sentiment in recent weeks would continue through most of the new one: Expectations for a push in the Biden Administrations first 100 days towards massive increased fiscal stimulus spending means: when in doubt, buy stocks. This “strategy” got increased support on Tuesday as Treasury Secretary nominee Janet Yellen made it a point in her Senate confirmation hearing to align herself with the Federal Reserve’s position that aggressive fiscal spending will be required to ensure a strong US economic recovery. The headroom offered by climbing equities as well as another rise in oil prices boosted the broader commodities basket at a gentle pace during the overnight session, and gold prices rode the tide to $1850/oz ahead of Wednesday trading in the US.
Biden’s Inauguration Saw Equities Continue Breaking New Highs, Lifting Metals as Well
There was again some very choppy pre-market trading in gold on Wednesday, but the metal’s strong support at $1830 remained and gold was able to rebound in shorter order, before riding the coat tails of a very strong move higher in US stocks once cash trading began. By the time Joe Biden was inaugurated as the 46th President of the United States, gold spot prices had risen to $1865/oz while silver was trading above $25.50.
All of the new administrations first public-facing steps, from Biden’s address to the first orders of business was again supportive of investors’ hopes for stimulus spending, particularly the proposed $1.9 Trillion relief package that I suppose will be dominating our newsflow in the coming weeks. The expectations for spending again pushed US stocks to new highs, while dampening any US Dollar momentum. With the benefit of these tailwinds, gold prices held steady around $1870 (with silver occasionally teasing a run above $26/oz) through the Wednesday/Thursday overnight as overseas markets got in on welcoming the Biden Administration to power with the major developed market indices all moving higher.
Investors put gold and silver through the paces of some up-and-down price correction early Thursday morning that aligned (somewhat surprisingly) with jittery EUR and USD trading around the European Central Bank’s policy (non)decisions and press conference, during which ECB President Christine Lagarde highlighted the “serious risks” that the pandemic poses for any hopes of economic stability in the EU. A stronger flight to safety, which likely would’ve benefited the Dollar above other havens like gold, was hinted at when this week’s Initial Jobless Claims number was again worryingly high (but this time within expectations,) but gold prices never looked likely to fall below $1860/on the day.
US equities also opened Thursday with some frothy trading, but stocks—lead particularly by a surging tech sector—ultimately rose to new (ever-increasingly meaningless) “record highs” on the first full day of the Biden Presidency. By mid-day, gold prices steadied out before climbing to $1870/oz just ahead of the market close.
Reawakened US Dollar Offers some Headwinds, but Gold Buyers Remain Resilient
Friday’s trading has again underlined the current inverse relationship that gold prices have had with US Dollar momentum. In the early hours of the morning the updated PMI number for the EU came in about as ugly as expected, confirming the ECB’s argument that the common currency zone is getting roiled by a “double dip” recession as it struggles to contain surging coronavirus infection rates while the roll out of vaccinations is struggling. The bad news for Brussels sent the Euro and Euro-denominated debt reeling, giving the US Dollar some space to rise above it’s week of underperformance. In response, or so it seems, gold prices came under consistent selling pressure ahead of the start of US trading. The yellow metal, however, was well supported in the region of $1840/oz and has spent most of Friday’s session on the rise.
The final trading day of the week has been less kind to US stocks. Despite a strong outperformance in data measuring economic activity in the US, equity markets are set to close out the week on an anemic note. The most likely culprit is a slump in the tech sector that had previously been leading the market’s inexorable charge higher, after IBM and some others returned disappointing earnings results. Of course, as seemed to be the case last week, it’s possible that the still-worsening reality of the domestic and global struggles to combat Covid-19—which President Biden ruefully projected will kill another 100,000 Americans in the next 30 days—have caught up with and overtaken investors’ exuberance for bottomless fiscal and monetary stimulus spending. The more things change, as they say, the more they…you know: don’t.
With the Dollar still lagging despite more positive momentum to end the week, gold’s rebound on Friday has been slow but steady. At midday, the yellow metal its trading with strength just above $1855/oz.
The future of the Biden Administration’s Covid relief package and the fight against Covid itself will once again be the primary focus as we attempt to navigate the markets next week. The economic calendar does perk up a bit though, and we’ll sit down for 2021’s first FOMC meeting on Wednesday, followed by our first calculations of Q4 GDP for the American economy.
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.