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 other key correlated assets—and may continue to into the future. 

Gold prices look likely to end the week at or just below the market’s opening prices for the week, although the chart of the week is certainly not a straight, flat line. 

So, what kind of week has it been? 

Investors seem to have poured out all of their energy, made the majority of their moves, and then taken a step back, all within the first trading session of this week, with all going relatively slow and quiet since gold’s week continued to be more active.  

We were, for the most part, skeptical of the optimistic relief rally that seemed to return to the marketplace on Monday morning. After all, we had seen a similar rally, in spite of—or, perhaps, in a “we’re playing four-dimensional chess” kind of way, in reaction to—some of the most over-heated inflation data we’ve seen in decades. That came last Thursday, but the rose-tinted trading didn’t even make it to the weekend, as Friday saw a pretty strong retracement when investors reassessed and game to gloomier conclusions that saw the Dollar rise once again as US equities, global commodities, and other Fed-sensitive assets gave up the one-off gains. 

So, when Monday kicked off by unexpectedly trading once again on more optimistic projections for economic growth in the US and abroad sometime beyond the near term, any and all observers were right to be wary that the rise might just run backward once again; including the surge in gold spot prices, which drove the yellow metal back above $1660 for much the morning. Particularly because not only has the underlying macro environment not actually changed yet—the more positive outlook for now is still a very much hypothetical outlook—but a key run of Q3 earnings reports were coming due this week, and those same thready undercurrents of economic growth looked likely to have damaged the earnings of some of the global market’s most important workhorses. 

Even after doing so for most of the last year, it still feels unfamiliar to talk about the US stock market and the price of gold as two assets that move in tandem, but thanks to how the US Dollar has become the dominant counterparty to nearly all major asset classes, this is very much the paradigm in which we remain and will for the rest of this phase of the monetary cycle.  

After Monday, the stock market would go on to net out as relatively unchanged in most sessions, being buoyed by a run of outperformance in the Q3 earnings of several top-tier banks and tech giants. Gold, like many commodities and other groupings, came under more substantial, less mutable pressure from some usual suspects as any investors and managers not enamored with earnings calls once again turned towards November and the question of whether the Fed will deliver another massive rate hike: while the Dollar hasn’t really regained the power of its stride, bond yields began running high and hotter as early as Tuesday afternoon, with the benchmark 10-year rate driving above 4.1% by midweek and sitting at 4.22% on Friday.  

As we would expect, this surge in yields and the macroeconomic outlooks compelling it have been a negative input for gold prices. Spot tailed off on Tuesday but really fell the fastest on Wednesday as prices dropped to the lowest levels in more than two years, falling below $1625/oz multiple times. From Friday’s view, however, it hasn’t been “all bad” for gold and its outlook. Repeatedly, since Wednesday, dips to these two-year lows for gold have been greeted by a run of buying, as there seems to be more belief that the yellow metal is “cheap” at these levels, given the possibility that the Fed’s path (or, at least their pattern) changes in the medium-term. The rally we’re seeing on Friday is the strongest so far, with gold prices rising back above $1650/oz, even though the retracement in Treasury yields has been minimal. 

As we move through the rest of Q3 earnings season, most eyes on the market are actually looking down the road; not really to next week (which so far only has next Friday’s PCE Price Index data set on the calendar, amid blackout period for Fed officials,) but to the week after, which bring what—as of today, at least—is the least predicable FOMC meeting and decision in several months. (To be clear, it remains a virtual lock that the central bank will hike; the question is, by how much?)  

Looking to the next week or so, we have yet to get a feel for whether the uproar in the UK, which certainly looks to be a serious threat to the stability of their own economy, will have spillover effects for the Dollar and (as such) equities in the US and other major asset classes. So far, the real impact on the Dollar seems minimal, although the resulting GBP strength may be muting USD to some extent.  

The pound is surging pic.twitter.com/FM3FSKfrgW

— Joe Weisenthal (@TheStalwart) October 20, 2022

What might actually come to bear more noticeably for the US currency—and for gold prices as a direct result—is the sudden intervention by the Bank of Japan that was announced Wednesday night as an emergency measure in the JGB market. 

Bank of Japan to conduct emergency bond buying as yen teeters near 150 https://t.co/TMkMMzBXgj pic.twitter.com/XCTfDIzAsN

— Reuters (@Reuters) October 20, 2022

While the BoJ’s activity might not have an outsized, direct impact on the USD, it is, of course, a worrying signal about the stability of a G7 economy as the globe is still possibly being dragged towards a recessionary phase. 

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.