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 prices are trading below previous key support of $1900/oz on Friday, at the end of a tumultuous week that saw financial markets begin to crack under the weight of an uncertain near- to medium-term outlook for the US government and economy as well as a damning resurgence in coronavirus infections ripping through the developed world. Silver likewise has taken losses on the week to, trading near $23.50/oz ahead of the weekend.
So, what kind of week has it been?
Monday: As Equities Fell Ahead of a Gloomy Outlook, Gold’s Gains were Slowed but Metals Held On
The sinking US stock market that we highlighted at the start of Monday’s preview in fact went on the be the dominant focus of all major assets to begin the week. The reporting on new and higher daily coronavirus infection rates in the US and Europe only got worse as the day went one, with European governments enacting or considering the first phase of new lockdown measures; In Washington, there was to be no last-minute turn in the utterly failed stimulus negotiations before the Senate adjourned until after the federal elections (the House of Representatives had already blown town.)
With investors in a strongly risk-averse mood, equities continued falling throughout Monday’s session with the S&P 500 losing nearly 3% intraday, the deepest decline in the benchmark for a month. Safe haven assets response according to what has become our view of the norm: The US Dollar and USD-denominated Treasury debt saw the strongest buying, with the Dollar Index moving higher and prices for 10-year Notes climbing steadily all day. Although gold prices were capped by the rising Dollar, the yellow metal demonstrated support at $1900 on Monday; Silver was less resilient on the charts, but managed to stay well above $24/oz.
When Asian markets began trading on Monday evening, with their domestic equity markets slumping in reaction to the US markets’ tumble, gold prices were allowed to rise with less Dollar cash-grabbing happening in the market. The overnight rally saw gold spot prices make the best run of the week to $1910/oz.
Tuesday: Gold Prices Edged Slightly Higher in a Calm Before the Storm
Tuesday’s markets were subdued relative to trading the day before, as investors and managers seemed to take a day to assess their next immediate moves one week from the US elections. During the first half of the European session, as the downward slope of Monday’s US equity markets carried over to indices across the Atlantic, gold prices rolled-off from resistance at $1910. Prices fell to support at $1900 before rallying again ahead of US stock markets’ opening.
There was little in the way of newsworthy domestic development for US traders on Tuesday. Markets remained at the influence of fear around steadily spreading coronavirus infections and frustration around the lack of any stimulus for the American economy. The dueling stressors sent equities lower for a second-straight day (albeit at a gentler pace) and even the Dollar lost some ground. Gold spot prices benefited, running back to $1910 midday before being sold a bit lower by profit-takers at the close.
Wednesday: Financial Markets Gave in to Covid Fears & Election Uncertainty, Driving Investors into Cash at the Expense of Gold and Most Other Assets
One week from the day on which a majority of observers still believe we will know the legitimate results of the 2020 US Presidential election, straining under the pressure of no immediate help coming for the US economy and new quarantine lock downs in major developed nations amid a crushing resurgence in Coivd-19’s spread, the floor fell out of the markets. After a shaky session in Asia, European equity markets took a nosedive, bleeding off more than 3% on day. At the open of cash trading, US stocks also plummeted.
The S&P has fallen the most in 2 months, and the Nasdaq and Dow are off over 3%.
— Bloomberg (@business) October 28, 2020
Equity indices never had a chance to get off the mat on Wednesday as daily reporting indicated soaring infection rates in the US that are threatening hospitals’ normal operations.
Gold prices began rolling lower during the European morning as worried London- and Frankfurt-based investors began a new move into (mostly USD) cash. From an overnight peak, spot prices fell to $1900 before falling through. As US traders took command of markets, the flight to Dollar-denominated safety accelerated and drove the yellow metal’s chart farther below prior support while silver spot prices slipped below $24. Alongside the liquidation of positions in a grab for cash, the metals were also dragged low by weakness throughout the commodities complex, led by a nearly 6% sink in crude oil.
The sharper descent for gold price pre-market meant that even as US stocks fell throughout the day, precious metals had already found the next level of temporary support, and traded relatively flat for the majority of Wednesday’s session (and through most of Asia’s Thursday,) with gold prices banded between $1875-80, and silver held just shy of $23.5/oz.
With an utter lack of positive news to ease the pressure US Dollar gains were putting on gold, the metal began consolidating at the recent lows.
Thursday: Gold Price Fell Farther as Improved US Economic Data Drove Investors to Risk Assets Instead of Metals
Gold again began falling in the hours ahead of the US’ Thursday session, as another rocky day in European equities and a further drop in oil prices pressed more positions out of gold and into USD cash. As New York managers logged on expecting another down day in US stocks, the selling of non-USD positions intensified and Wednesday’s support failed, allowing the yellow metal to tumble below $1865/oz.
The look of US equity markets changed just before the start of live trading, thanks to stronger than expected numbers from this week’s biggest economic data. Initial jobless claims for the most recent week came in lower than expected and, importantly, brought the 4-week average below 800,000 for the first time. Also released at 830am EDT, the first calculation of US economic growth for the third quarter came in a couple points higher than anticipated. Spurred on by the first flash of optimism in probably a week (and in spite of US coronavirus infection rates making new record highs each day,) stock markets clawed back some of the week’s losses. The S&P 500 made its biggest daily gain since mid-October and yields on the US Treasury 10-year note moved back above 0.8%.
The Dow jumps as stocks rebound from the worst sell-off in months, tech leads the comeback. https://t.co/UgDqEn752q
— CNBC (@CNBC) October 29, 2020
There are, I feel, three caveats that are important to point out about this GDP read as a possible driver of metals prices in the next month. For one, economic growth of 33% in a quarter is certainly spectacular in a vacuum, but when compared to the violent 32% contraction from Q2 its important to understand that the US economy is still “in the red” for 2020. Secondly, and I believe this will underline the first point in November: this was the first assessment of the data and we’ll get revisions in the coming weeks; downward revisions (which I think are very possible) could easily push markets farther back into a risk-off stance, to the benefit of either gold or the Dollar (or both.)
GDP level still has a ways to go (amazing to see some tweets yesterday not understanding that +33% doesn’t make up for -32% in prior Q ... that’s not how math works); 2nd chart shows category comps to Q2 @WSJ @CommerceGov pic.twitter.com/D0HsBn8h3u
— Liz Ann Sonders (@LizAnnSonders) October 30, 2020
Lastly, with the 2020 US elections (hopefully) finding resolution next week, outlook and expectations for US economic performance could shift dramatically in just the next 30 days. That is to say: don’t get overly comfortable or committed to any views that you have 4 days before a major election.
Friday: Ahead of Next Week’s Massive Uncertainty, Gold Prices Are Showing Faint Signs of Recovering
Gold prices were held near the lows around $1865 through much of Thursday and the Friday overnight trading sessions, but have been on the rise again as we wrap up October the final full week of trading before the US elections. Despite a strong batch of earnings reports from the megacap technology firms that have been pushing a large percentage of recent market gains, Thursday’s brief shock of optimism for the US economy has faded quickly and all major benchmarks are headed towards near-2% losses on Friday. The US Dollar is of course a beneficiary of the market’s loss of risk-appetite, but the yellow metal is also seeing gains as it attempts close north of $1880/oz before the weekend.
I generally try to avoid getting to technical in our weekly time together, traders. But I hope you’ll allow me to indulge in a bit of jargon: Next week’s calendar is what macro traders often refer to as “an absolute doozy.” We have an FOMC meeting that ends on Wednesday, and October’s very important Jobs Report at Friday—neither of which can really be viewed (by smart traders) independent of the US federal elections held on Tuesday. At this point we can’t even say with great certainty that we’ll have confirmed results by Wednesday morning, so the most helpful advice I can give at this point is to expect uncertainty.
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.