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 in the future.
So, what kind of week has it been?
Here's what you need to know:
- Gold held on to most of its recent rally this week, trading largely between $4,325 and $4,425/oz as buyers continued to defend the rebound.
- July CPI data helped ease immediate concerns about another Federal Reserve rate hike, supporting gold as headline inflation held at 3.4% year over year and core CPI eased to 2.5%.
- Thursday's PPI report delivered a mixed inflation signal: headline producer prices were flat, while the measure excluding food, energy, and trade services rose 0.4% month over month. Gold gave back part of its midweek advance even as September rate-hike odds continued to fade.
- Next week brings July import and export prices on Tuesday, the minutes from the Fed's July meeting on Wednesday, and fresh jobless claims and regional manufacturing data on Thursday, while Middle East developments remain an important source of headline risk.
So, What Kind of a Week Has It Been?
The gold market has seen some choppy trading over the last five sessions but, critically, has held on to a majority of the recent rally, trading in a band between $4,325 and $4,425/oz. With a relatively quiet macroeconomic calendar through the remainder of August as we close out the usual summer doldrums, the market's consensus expectations for the next steps in monetary policy are painting a slightly brighter near- to medium-term glide path for gold. Meanwhile, the looming risk of another sudden shift in the geopolitical conflict centered around the Strait of Hormuz has done little to fade.
Inflation Data Keeps the Rate-Hike Debate in Focus
Some of the most volatile trading we saw this week in gold and other major assets centered on new U.S. inflation data released on Wednesday and Thursday. Wednesday morning's CPI print came in as expected, with headline consumer inflation at an annualized 3.4% last month while the less volatile core CPI reading was 2.5% year over year. In both cases, that represented a step down of 0.1 percentage point from the prior annual readings.
The data signaled to investors and economists that, for the time being—admittedly a very tenuous qualifier—the U.S. and global economies may avoid a further acceleration in price pressures resulting from the U.S.-Iran war and the higher energy prices it could create. That corresponds with other recent indications that the Fed does not need to rush into raising interest rates again, or that the U.S. economy may struggle with the restrictive impact that higher rates would create. Unsurprisingly, gold saw a healthy rally on Wednesday following the CPI print.
The macro signals were more mixed 24 hours later with the release of July's PPI report, which tracks inflation in the costs felt by producers rather than consumers. Overall producer inflation for July was reported as flat, but the measure excluding food, energy, and trade services rose 0.4% month over month. That combination suggests that some underlying price pressures remain even as the headline number cooled. Gold's rally toward $4,425/oz and above corrected lower following the release, although market pricing for a September Fed hike continued to ease rather than rebound.
Softer Consumer Data Adds to the Case for a Fed Pause
Other data points this week, most importantly Friday's Retail Sales report showing an unexpected decrease in consumer spending last month, have been more aligned with Wednesday's CPI release in building the case against a near-term rate hike. By Thursday, market-implied odds of a September hike had fallen to roughly one-third, down from near 50% earlier in the week.
Looking Ahead
This shift in monetary policy expectations has been key to gold's recent rebound and is likely to keep a reliable floor underneath prices for the yellow metal. The next major test arrives on Wednesday with the release of minutes from the Fed's July meeting, alongside a lighter slate of industrial, housing, and regional manufacturing data. At the same time, the market may simply be distracted from the much less tangible and less predictable risk of a re-escalation of the conflict in the Middle East and its potential disruption of global energy trade. That threat has not gone away; it has only been obscured, an effect that expectations for less hawkish monetary policy cannot maintain indefinitely.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I'll see you back here next week for another market recap.
