GoldPrice.

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 closing out another constructive week, in which tailwinds for the yellow metal generated by another hot-and-hotter CPI inflation report helped power spot prices higher despite US Treasury yields moving above key levels for the first time since 2020.

So, what kind of week has it been?

At the end of a week that has been very constructive for gold prices (and many other core commodities,) there isn’t much worth talking about that’s not connected to US inflation data and the Federal Reserve’s imminent decision-making.

Gold made a strong start to the week that provided the base camp for the climb that we’ve seen since CPI data hit the wires on Thursday morning; The yellow metal’s early-week climb wasn’t particularly sharp or volatile, but it demonstrated that gold’s value for investors remained elevated even as US Treasury yields made their way north, towards 2% on the 10-year Note. Because gold spot prices managed to consolidate positions above $1820 in a marketplace with higher yields, that allowed prices to rally to as high as $1830 and beyond mid-week, when bonds staged a bit of a rally and yields eased back.

With a strong base underneath, it, gold’s chart endured some pre-market weakness on Thursday and a rush of volatility around the January CPI print. Now, with investors focusing so heavily on inflation concerns and inflation projections, gold again had no shortage of buyers even as Treasury yields (particularly on the near-end) surged in a way we hadn’t seen in quite a while, which culminated in the 2-year yield returning to its pre-pandemic levels.

I challenge you to find a more amazing chart than the 2-year Treasury yield over the past two years. pic.twitter.com/PJ4ZTx3g2B

— Brian Chappatta (@BChappatta) February 10, 2022

Gold reached the week’s zenith during the flurry of trading post-CPI in Thursday, top-ticking above $1840/oz before being pulled back to earth by some combination of the rampant runs in Treasury yields and profit-taking from the yellow metal’s new highs. Still, buyers prevented spot prices from falling far below $1825 during the last overnights of the week, and from Friday morning we’re seeing a familiar pattern play out again: Gold has risen with an aggressive tailwind from investors’ inflation concerns, endured the pressure of yields climbing at the same time, and, with bonds rallying a bit into lunch time, gold prices are getting further lift.  Such strong gains in the second half of the week certainly open the possibility of profit-taking at the end of the day that might moderate the precious metal’s closing price for the week; But as of midday on Friday we’re seeing gold again rising to $1840/oz.

The inflation print that kicked off the late-week rally for gold prices and Treasury yields was a release of CPI data that somewhat exceeded the consensus’ expectations; The red-flag-waving from financial media and pundits, however, rolled out pretty much as we anticipated. As prices for US consumers just within the month of January rose faster than expected as well, the headline and core CPI numbers climbed to 7.5% and 6% on a year-over-year basis, respectively. These number set a marker alongside the highest recorded inflation in the US in 40 years.

Although there continue to be indications in the underlying data that suggest that the inflation that has been surging since 2021 is peaking (if we can only unwind some of our obstinate supply chain issues,) that’s a train that markets and investors have been waiting quite some time for with no joy. And so, especially as it’s becoming clear that wages are starting to lag seriously behind the inflation run, attention is turning to the Fed’s plan and path.

Following Thursday’s CPI, and with five weeks to go until the next FOMC meeting, pressure may continue mounting on the Fed to get more “extraordinary” with at least the next few moves against inflation. With markets appearing to have fully prices in 4-5 interest rate hikes of 0.25% for the 2022 calendar, there are three ways that the Fed could act more aggressively to tighten the economy and tamp down on inflation. In rough order of how “unusual” they would be, these options are:

• Raise rates at consecutive meetings (as opposed to raising rates in March, assessing through April, and raising again in June.
• Raising interest rates by 50bps in one move. (The Fed hasn’t raised by 0.50% since 2000.)
• Raising rates outside of an FOMC meeting. (This would be considered an “emergency” move by the central bank.)

The hot inflation numbers that printed this week not only spurred an adjustment to the outlook of investors and managers, but also prompted one of the FOMC’s more aggressive members to go so far as to argue for rates to be hiked by a full 1.00% by this summer, one way or another. Reflexively, several other Fed officials have come out since Thursday afternoon to push back on Bullard’s suggestion; So we may not be seeing emergency rate hikes anytime soon, but a 0.50% hike in March is squarely on the table, and previously reluctant research desks, like Goldman Sachs’, are now calling for as many as seven hikes this year.

While these projections for an increasingly aggressive Fed point towards higher Treasury yields (as a result of lower bond prices,) it’s less clear to say which way this might lead gold prices. Intuitively, we want to say that the rising yields will be a headwind for gold prices. But we only have to look at this week to see that the impulse from investors to drive gold higher as an inflation hedge is (for now) outstripping a lot of the pressure from the sovereign rates rally.

This is a dynamic we’ll continue watching closely next week, as the data calendar is sparse but there is likely to be a good amount of chatter from Fed officials.

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.