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.
Preemptive moves and delayed reactions have been the story for gold’s prices chat since Monday. While it isn’t exactly what we would have expected— or can logically explain in hindsight— the math has shaken out to a net gain for the yellow metal (as of lunchtime Friday.)
So, what kind of week has it been?
With Wednesday’s Consumer Price Index report expected as the key pivot point for the week, the gold trade was healthy on Monday, with the metal appearing to hold tightly to gains consolidated last week, which kept prices near $1920/oz. Our call for the start of the week had been that gold would need to ride this high line as long as possible because the projected results of the updated inflation data looked like a looming headwind for gold and similar commodities, as it would affirm the belief that the FOMC will have plenty of room to enact another rate hike next week. Tuesday, then, was concerning for gold-longs, as traders and managers across multiple asset classes appeared to decide as a group to pre-position for the CPI report a day ahead of time rather than play the risk of loss or gain live on Wednesday morning. For gold, this played out as a sharp drop of roughly $10/oz on Tuesday morning in the US before buying support stepped up for the day near $1910. The next 24 hours felt uneasy in the gold market as it was unclear whether the expected decline in “core inflation” year-over-year would sink prices further.
Come Wednesday morning, while the core CPI number declined as expected, the report overall was a bit more of a mixed bag, with all-inclusive consumer inflation moving slightly higher than anticipated. Whether that inflation number coming in 10 basis points higher than the already expected increase is a material “miss” is debatable, but it certainly didn’t read as a spike that would compel the FOMC to act more aggressively in the near future. As a result, rather than an immediate, volatile reaction to the inflation number(s) in the market, gold’s price chart remained relatively flat and, despite a few dips below $1910, continued along that line throughout Thursday as well.
Late Thursday afternoon, reports began to break that a UAW strike at major US auto-manufacturing plants; the possibly prolonged work-stoppage is a more complicated, developing story, but we can already assume that one of the much-discussed topics will be the potential impact of a blockage in one of the core components of the US economy. Because of this, we would have expected a more significant shift in risk sentiment to be felt right away in the financial markets. Although gold prices stepped a bit higher— back to $1915/oz— late Thursday, it wasn’t until Friday morning that we saw a combination of the UAW strike and shifting expectations of a probable Fed rate hike next week really turn the screw on risk appetite.
What’s been the most surprising development of the week, in some respects, is the fact that, as “riskier” assets like major US stock indexes are sliding at the end of the week, the corresponding flight to safety is pushing bids into gold, while the recent dominance of the US Dollar is softening a bid. Despite the likelihood that we’re less than a week away from another hawkish Fed Day, gold prices have moved higher on Friday morning and are looking to go green for the week. Spot gold prices seem well-positioned to close at or above $1925.
Looking ahead to next week, there’s no doubt that Wednesday’s FOMC meeting is the big gorilla in the room. Not only do we have a potential rate hike to reckon with, but we’ll also see updates made to the Fed’s economic projections for the remainder of 2023, 2024, and beyond.
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 next week for another gold market recap.