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 the end of the week well below where they started, following an early-week flight to safety which prioritized the US Dollar as a near-risk less position over most other financial assets, including the long-standing safe havens like gold. In the days since, however, gold prices have rallied back above $1900 and may be able to consolidate support at that important level heading into the US elections.
So, what kind of week has it been?
Monday & Tuesday: A Dramatic Resurgence in Risk-Aversion Showed Markets Still Prefer USD as Prime Safe-Haven over Gold
Monday’s trading session was pretty lightly attended due to the federal bank holiday observed in the US. While stock markets made solid gains on the day, led further again by a surge in megacap technology shares, gold prices moderately fell before consolidating near $1920/oz. It appeared that the yellow metal’s chart was settling in for a calmer start to the week, albeit one that would likely generate more upward momentum due to growing economic uncertainty.
Safe-haven assets like gold, traders should remember, are always beholden to sudden shifts in sentiment and risk appetite; these shifts can happen suddenly and (as seems to be increasingly common in the second half of 2020) with little in the way of objective evidence as to why. Tuesday’s trading presented a strong example of this dynamic.
Gold prices had endured some steady pressure on Monday night after headlines about halted round of coronavirus vaccine testing rattled market sentiment; bond markets became more active after Monday’s holiday pause, and the risk-off mood of overseas investors was expressed through rising prices for US Treasury debt and the Greenback overall. Precious metals had pared losses heading into start of US trading, but as New York desks stepped forward we saw the unpredictability of the current market at play. With very little in the way of “new” information, investors seemed to finally give up the hope of any fiscal lifeline for the American consumer coming any time before November (at best.) Huge sums fled from equities and commodities positions ahead of a through the US stock markets’ opens, and the only safe-haven assets anyone wanted to be in were Dollar-denominated (that is, US Treasuries and cold cash.) Gold spot prices collapsed back below $1900/oz with surprising speed, and silver prices fell back to support at $24 while US equities were down across the board.
Momentum seemed to peter-out of commodities charts within an hour of cash trading, and prices flattened out for the rest of the day. In a minor bullish signal for gold prices, support seemed to have moved up $10 since last week’s nadir; the yellow metal enjoyed reliable buyers around the $1890/oz level.
Wednesday: Precious Metals Regained Some Ground as the Flight to Dollar-denominated Safety Slowed
The general sense of unease and worry still pervaded markets midweek, particularly on Wednesday afternoon as pricing for some key bank shares weakened and the US Treasury Secretary for the first time publicly cast doubt on the chances of a stimulus agreement. The negative headlines kept pressure on equity markets throughout the day and forced the Dow and S&P benchmarks to both close with losses on the day.
Interestingly, at least from a gold trader’s perspective, while the markets remained in a risk-off posture it seemed as though Tuesday’s rush into US Dollar cash to the exclusion of other safe havens may have been overdone. It would be an exaggeration to say that the Greenback was considerably weaker in Wednesday trading, but it’s the momentum was far less than we saw in the day prior. US Treasury debt prices reflected this as well. The release of pressure allowed precious metals to take back some ground, and gold spot prices rallied as high as $1913/oz in mid-morning trading. Silver made it to $24.50.
Although both metals weakened from the peaks as trading progressed in the afternoon, from a technical aspect it was a positive development for prices looking into the near future. On the gold chart, $1900 appears to be unreliable as either support or resistance right now but that could change if prices are given the opportunity to consolidate just above or below the mark.
Thursday: Gold’s Rebound Continued as the US Labor Market Outlook Darkened
Through the tail end of the week so far, the yellow metal has been allowed to do just that and Thursday’s market trading actually suggests that there’s a little more room to the upside for gold than to the downside, speaking about near-term outlook.
It was a fairly calm day in terms of economic data or (relevant) news flow. The key point, and one that will impact investors’ assessments of US economic strength heading into 2021, was a considerable jump in the already too-high rate of new applications for unemployment assistance.
BREAKING: U.S. jobless claims reach 840,000 as layoffs remain high 7 months after virus struck economy https://t.co/l3d8Ncbre3
— The Associated Press (@AP) October 8, 2020
New weekly data registering near-enough to 900,000 lost jobs is bad enough, last week’s mildly disappointing number getting revised a bit higher as well is also a blow to the labor market outlook as the US continues struggling to make a real recovery with consumers and firms alike floundering for lack of any help from Congress or the Trump administration.
Gold prices weren’t immediately activated on the news, as the US Dollar again was the primary beneficiary of risk-aversion. But ultimately Thursday’s dynamic among the key safe havens assets was much like the day prior: The Greenback and US Treasury prices held onto a lot of the week’s new positions, but their momentum slowed as more investors stepped back into the precious metals and broader commodity space. Sitting at a daily low as the US trading day began, gold prices had solid upward momentum all throughout Thursday. The yellow metal closed at a daily high just below $1910 (spot,) even as US equities in the afternoon made back a majority of losses for the day.
Friday: Solid Retail Numbers Have Goosed Equity Buying, but Gold Prices Continue to Hold
Finishing the trading week, gold prices have endured some up-and-down trading since Thursday evening’s close but, at the time of writing, seems to finally be building more reliable support at $1900/oz. Equity markets in the US appear set to break a three-day losing streak, thanks to a big boost on the back of Friday morning’s retail data which strongly out performed. That same shift back to some degree of risk-on asset buying has clipped gold’s wings a bit, but the yellow metal still appears likely to close the week above $1900/oz.
The economic calendar for next week is exceptionally light; Just as well. As we move one week closer to it, the potential chaos of the US federal elections in November and the still-uncertain picture of what will follow are expected to dominate the sentiment and positioning around risk-correlated assets like gold.
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.