Hello traders, welcome back to another week in the metals markets.
After closing just below the big-time (that’s a technical term) psychological level of $1400/oz to close last week, gold spot prices have seen further gains since the start of Asian trading Sunday evening and now trade at $1410 and not far off of last week’s 6-year high.
If I’m being honest, at this high altitude the gold chart feels a little languid to me. It feels like a very un-exciting $14-handle, and to me that makes it tentative.
The major impactors for gold prices this week, and the determinants for if this new level will hold, will likely be geopolitical headlines more than anything on the economic calendar. The first we need to watch is the still-sensitive situation between the US and Iran. The weekend was blessedly without any major escalation in the conflict and, at least so far, it seems like both sides are settling for lobbying mean tweets, more sanctions, and the occasional cyber-attack at one another for the time being. I think it will take at least a full week of no escalations for the safe-haven impulse we’ve seen this introduce into the market begin to drain out. Conversely, just about any indication that we’re heading for a hotter conflict will certainly lift gold prices.
The second story we’ll be watching is the lead up to the planned meeting between Trump and Chinese President Xi this weekend at the G-20 summit in Japan. The sit-down isn’t scheduled until Saturday, but reports are that the delegations will begin ironing out the details as early as Tuesday so we could see headlines around that mid-week. As I’ve said before, it’s very difficult to untangle the Gordian Knot of correlations between the trade war, the USD, the Yuan, and gold prices ahead of time; but I think it’s safe to say for now that any result of this meeting short of rolling back tariffs on both sides will be supportive of gold prices. As a result, depending on how other factors have influenced the gold charts over the course of the week, come Friday afternoon we may see some busier than usual gold buying in an attempt to position for Trump-Xi headlines that will break over the weekend with the markets closed.
But I’m getting ahead; there’s a whole week of trading before now at then, so let’s have a look at the rest of the week ahead.
US Economic Data this Week
Tuesday, June 25 at 9am EDT // Case-Shiller Home Price Index (Apr)
[consensus expectation: +0.6% MoM // previous: +0.7%]
There was some disappointing housing data buried by all the FOMC and geopolitical headlines last week, but that was for the month of May while this round of the Case-Shiller Home Price Index examines the prior month, so I wouldn’t expect to see the same weakness here.
Tuesday, June 25 at 10am EDT // Richmond Fed Manufacturing Index (June)
[consensus exp.: +4.0 // prev.: +5.0]
The Richmond Index doesn’t typically make our rundown, but last week we saw some really concerning results from both the New York and Philly Fed’s variants of a survey assessment of the US manufacturing sector. Though not typically a gold-driver in my experience, a third consecutive red flag on Tuesday morning could weakened the US Dollar further and bring in some of the same safe-haven gold buying that has been a characteristic of the last few weeks.
Tuesday, June 25 at 10am EDT // New Home Sales (May)
[consensus exp.: +1.8% MoM // prev.: -6.9%]
A slight month-over-month increase here is a reasonable expectation after a strong decline in April. I have to note however, this is basically the same thing I said about May’s Existing Home Sales data last week, which turned out to be another month of decline. As a historically reliable forward indicator of the American economy’s health, deteriorating housing data might exacerbate the increasing concern created by recent data on the manufacturing sector and drive continued safe-haven positioning.
Wednesday, June 26 at 8:30am EDT // Durable Goods Orders (May)
[consensus exp.: flat MoM // prev.: -2.1%]
The aircraft industry saw a further decline in commercial orders for the month of May, and that is what largely accounts for the uninspiring predictions for the headline Durable Goods number. With such a clearly attributable headwind, I wouldn’t expect the metals or currency markets to react much to the data. However, if the core data (ex. transportation) is similarly ugly, that could be another of the fear-drivers we’re looking for to boost safe-haven positioning.
Thursday, June 27 at 8:30am EDT // GDP (Q1 – Final)
[consensus exp.: +3.2% QoQ // prev.: +3.1%]
We’ve had a few passes at refining the Q1 GDP growth rate, and the “final” read for each quarter is usually uneventful. Still, given the very specific and reliable data point that I’ll call “the way things have been going lately,” it won’t hurt to keep an eye on this release…
Thursday, June 27 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: +218k // prev.: +216K]
…especially since Initial Jobless Claims will likely continue to be a side-ways moving bore. Easy Thursday!
Friday, June 28 at 8:30am EDT // Personal Income (May)
[consensus exp.: +0.3% MoM // prev.: +0.5%]
Friday, June 28 at 8:30am EDT // Personal Spending (May)
[consensus exp.: +0.5% MoM // prev.: +0.3%]
Personal Income and Spending looks likely to remain on (at least) a slight upward trajectory for the foreseeable future, and the Spending number in particular will pass-through into the PCE Price Index. As was pointed out to me recently, there will really be no reason for us (or, more importantly, the Fed) to worry about a sustained fall in consumer spending until we see momentum shift in the labor market; the logic being if people have jobs they have money and if they have money they will continue to spend it.
Friday, June 28 at 8:30am EDT // PCE Price Index (May)
[headline consensus exp.: +1.5% YoY // prev.: +1.51%]
[core consensus exp.: +1.6% YoY // prev.: +1.6%]
PCE has been pointed to as the Fed’s preferred measure of inflation, but in turbulent times at the FOMC like we seem to have shifted into, I’m not sure that’s necessarily a permanent designation. Still, we’ll give it the weight it seems due for now. Annual change in PCE is expected to be relatively unchanged from last month, both for the headline number and the less-volatile “core” data. I think this would translate to a pretty uneventful Friday morning for gold markets. That said, depending on the messaging we get from FOMC members public remarks (see below) during the week, a PCE print showing that inflation is at least not getting weaker may temper the exuberant expectation of a July rate cut. Were that to happen, we could see some hard selling on the gold charts heading into the weekend. The other side of that coin, of course, is that unexpected weakness in the PCE numbers will further solidify that anticipation of easier rates next month and could send gold prices even higher.
The first round of public appearances by FOMC officials in the week following a notable Fed decision or statement is always attentively watched by the markets. I’d argue that this week will be the most important FedSpeak of 2019 to date, and all conveniently on Tuesday. It’s always a bit of a high-wire act to try picking which scheduled remarks are positioned to be relevant and which are just going to be boilerplate, but here we’ve done our best:
- 8:45am EDT // New York Fed President John Williams
- 1pm EDT // Fed Chairman Jerome Powell
- 6:30pm EDT // St. Louis Fed President James Bullard
Global Economic Data this Week
Friday, June 28 at 4am EDT // Euro Area Inflation (June)
[consensus exp.: +1.2% YoY // prev.: +1.2%]
It can be easy to forget that, before all the FOMC excitement last week, it was Draghi’s ECB that kicked off the rush toward central bank easing on Monday. With several analysts already calling for a switchback towards easier money in the European economy in the coming months, close attention will be paid to how inflation is doing in the single-currency economy. It won’t be a persistent dynamic long-term, as at some point interest rate differentials between the world’s major economies will become a core driver separation exchange rates—but for the time being I think any data points (like further weakening in inflation) that drive the ECB toward easier monetary policy will be seen as tipping the Fed towards the same, boosting gold prices.
And that is our week ahead, traders. I wish you the very best of luck in the markets, and I’ll look forward to seeing you all back here on Friday for a recap of the week.