Happy Friday, traders. Welcome to our weekly recap of the last five trading days, with a focus on the economic data, market news flow, and headlines that had the biggest impact on gold prices, as well as charts for the Dollar and other correlated assets.
Gold prices are marked $5-10/oz higher than they’re start to the week, following five business days that have seen more up-and-down trading in the yellow metal. That measure of volatility, however, has been relatively contained to a narrow band as this week’s FOMC followed the lines expected by the market. Silver prices, meanwhile, have continued to consolidate above $27/oz.
So, what kind of week has it been?
Monday: A Calm Day, Another Rising Gold Chart
The most persistent headline story on a mostly quiet Monday was the continuing stalemate in the US Congress that has halted attempts to pass a second, badly needed fiscal stimulus bill. With more and more observers glumly predicting that it would now be very unlikely to see a deal passed before the November elections, we would have expected such a negative stance to weight on market activity in the States.
Despite that, American stock markets were boosted on Monday by what Bloomberg termed “a fleury of deal activity.” Gold prices managed to come out a winner either way, with the combination of fiscal gridlock and M&A excitement pushing the US Dollar lower while US bond prices held mostly flat. Having opened US trading back above $1950/oz in spot markets, the yellow metal briefly challenged resistance before settling at $1955 in a calm afternoon; meanwhile, silver spot prices consolidated strength above $27/oz.
Gold prices pushed back above $1960/oz overnight, as a round of positive Chinese economic data spurred a rally in Asian equities while also boosting the outlook for gold demand.
Tuesday: Gold Fell Under Pressure of a Running Stock Market, but Held Its Line of Support
From the early morning hours in New York it was clear that US stock markets would continue the push higher in global equities that began in Asia after dinner. Positive momentum for US traders was pushed a little bit farther by a better than expected read on manufacturing activity from the New York Fed (even though actual industrial production for the same month disappointed somewhat) and gold prices fell victim to the pressure created by US stocks surging higher immediately at the open. The yellow metal’s chart took a sharp drop and within the first hour of trading spot prices briefly dipped below $1950/oz, although gold quickly established support just above that level while silver managed to keep its $27-handle.
Metals prices manage to calm after the dramatic start to the US session; gold would close within a few Dollars’ distance of the previous day’s mark. Ahead of Wednesday’s Fed meeting, US equities logged another day of gains, buttressed against selling pressures by strengthening tech shares. The Greenback was mostly flat on the day.
Wednesday: The Fed Reiterated Low Rates Are Here for a Long While, and So Are Downside Risks
Wednesday’s overnight trading was broadly similar to the day prior: with global investors anticipating the Fed to confirm a very dovish stance for a very long while equity markets rose in the Asian trading hours as did gold, with spot prices returning to $1960/oz. Alongside a weakening US Dollar, both asset groups would get a further boost in the European morning from an OECD report on global growth estimates that were more optimistic than expected.
As trading in the US book of business for Wednesday got going, many major asset classes turned in a mixed performance. Equities swung between modest gains and modest losses, gold prices—having run into strong resistance at $1970—marked an overall downward trajectory. The FOMC announcement itself was largely as expected; the committee took no new action, codified the new framework from achieving inflation in the agreed upon statement, and presented outlook projections that indicate almost no expectation for increased interest rates until the year 2023.
What financial markets were most sensitive to on Fed Day was Fed Chairman Jerome Powell’s underlining that the US economy, the global economy in fact, is far from making it out of the woods. The most cited line of Powell’s on Wednesday was his insistence that “the path ahead remains highly uncertain.” Gold prices endured some sharp up-and-down swings following the Fed statement and the Chairman’s press conference, but amid market concerns about the outlook Powell described the yellow metal fell once again. In fact, the only major assets that didn’t take some kind of hit on the afternoon were US Treasuries (boosted by the Fed’s projections) and oil prices (by Gulf Coast hurricane season.)
US equities took a battering, giving up the same gains realized by surging technology shares in a slump accelerated by—you guessed it—those very technology shares suffering a big sell-off. By the end of the day, gold has absorbed some hits, but still maintained a decent strength of support just below $1960.
Thursday: With Markets Swinging to Risk-Off, Metals Prices Fell as Investors Preferred Risk-less Bonds or Cash
Once live markets overseas were given the opportunity to react to Chairman Powell’s warnings of the uncertainty ahead, Asian and European investors made strong moves to pull back on risk, sending the major stock markets lower on the day and dropping pressure on prices for gold and other raw commodities. The spur of selling against the yellow metal knocked its spot price down to the $1945/oz range and even pressed silver prices below $27 for the first time all week.
Gold’s chart remained mostly flat to this lower level throughout the Thursday session, with the exception being a volatile couple of hours on either side of the US stock market open. It began with the weekly release of new jobless claims data, which reported a decline from last week that was very modestly better than expectations. While my initial reaction to the data was one of mild disappointment, it seems like the markets latched on to it as evidence that these first stages of a US recovery have the strength to keep lurching forward in spite of mounting headwinds (gridlocked efforts to pass more stimulus, election season uncertainty.) To that end, precious metals as a safe-haven asset endured very strong selling when the data released; gold prices fell asl low at $1935/oz (lows for the week) and silver slipped below $26.50.
From the moment the stock markets opened for cash trading however, it was clear that managers and equity investors were feeling less confident about the situation in the US: the Dow and the S&P immediately sold off en route to the biggest loss of the week. While US Treasuries benefited the most from the hard swing to risk-off positioning, metals prices did get enough attention to reverse gold’s losses from a few hours earlier and to push silver’s spot price back above $27/oz. With more general hand-wringing throughout the remainder of Thursday’s trading and little market news, gold prices flattened out by lunchtime and crept to an afternoon close around $1945.
Friday: Gold is Looking Like Green in a Calm Final Session
As we wrap up the week, financial and commodities markets a fairly quiet, and looks to sail through the “quadruple witching” that marks a coincidence of expiration dates on a large number of futures and derivatives contracts and can, at times, induce otherwise unexpected volatility.
Equity markets are flat-to-slightly-lower this morning, and with few catalysts to work off of in either direction gold prices seem perfectly content to end the week just a few dollars/oz above the $1950 level that opened the week after seeing buyers step back into the yellow metal in the overseas markets.
Next week’s data calendar is a little sparse, but I’m expecting some interesting commentary from Fed officials as they make they’re public speaking rounds following this week’s meeting. Elsewhere, I’ll be keeping an eye on any further increases in market volatility due to what I perceive as money managers’ growing discomfort with how sensitive the overall stock market is to up-or-down swings in the technology sector. And, perhaps more directly relevant to gold as a raw commodity, I’ll want to keep an eye on how the oil market continues to perform amidst some warning signals of fragile demand after last week’s drop in prices.
For now, traders, I hope you all have the opportunity to get out and enjoy your weekends while staying safe. I’ll see you back here on Monday for our look at the week ahead.