Happy Friday, traders. Welcome to our weekly market wrap, where we 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.
Spurred on by the most tragic of exogenous geopolitical shocks, gold prices are set to close this week near their highest marks since the summer.
So, What Kind of a Week Has it Been?
The most dominant driver of gold trading this week is the same thing impacting asset classes and investing activity across all financial markets, as well as by far the most relevant—and tragic—to life outside of the markets. The outbreak last weekend of what cannot be called anything other than war and terror between Israel and Palestine led to the immediate activation of gold's safe-haven reflex as soon as global markets re-opened for trading, pushing the yellow metal's floor and table considerably higher. By Monday evening, gold was already trading well above $1850/oz.
Through the remainder of the week, occasionally impacted by the macroeconomic inputs we typically track (which we will circle back to shortly,) gold spot prices climbed steadily higher as the headlines and horrors out of the Middle East continued to roll. Also getting a tailwind from a weaker US Dollar as a result of continued GOP gridlock and discombobulation as the US House of Representatives attempts to elect a new Speaker to allow for the passage of crucial budgetary measures, gold prices spent the majority of the week between 1870 and 1880/oz, most often closer to the latter.
Here, on Friday morning, we've seen an aggressive and abrasive acceleration of gold's rally as prices for the precious metal have rocketed higher since US trading began. The chart cut smoothly through what was expected to be stronger resistance at the $1900 level, climbing higher still. At lunchtime in New York, spot prices sit well above $1925 an ounce. This is the highest bid/ask mark for gold in nearly a month, coming at the tail of what looks to be the safe-haven commodity's best single-week performance in seven months. This sudden surge, while it has the usual shape of an acute (over)reaction by traders, is likely more of a preemptive move as managers and investors seek to move their positions to gold's historical use as a safe haven before markets close for the weekend with no end to the Gaza conflict in sight, much less to come over the weekend.
Assuming, as we must, that there will be markets to continue trading after the war in Gaza has resolved (or, as we've sadly come to accept with regards to the ongoing war between Russia and Ukraine, it has just become "priced-in" to markets,) it's worth considering the macro data points of the week and how they impacted gold (or didn't.) The release of meeting minutes and discussion notes for last month's FOMC meeting revealed little new information and largely reinforced the expectation that the Fed is expecting to hike rates again this year and very possibly again in the first part of 2024, although the consensus projection for November's FOMC decision may still be to hold rates where they currently are. The market reaction to this piece of information in gold trading and elsewhere was particularly hard to parse out from the Gaza headlines and a devolving situation with the cattle trading for the role of Speaker of the House in Washington. In practice, Wednesday's FOMC minutes didn't little to quicken or disrupt the gold chart's steady climb.
More impactful was Thursday's CPI report, which provided an update to consumer inflation data in the US economy. Here, the more closely-tracked "core" inflation number turned in the modest year-over-year decrease that was expected, while the headline CPI number printed slightly hotter than expected. While ultimately not a major setback for the Fed's crusade to cool inflation pressures, it certainly doesn't bring to the table any new argument for the US central bank to cease the current hiking path. This seemed to be the view that traders, particularly in the US Treasury Bond market, seized upon as yields streaked higher again, driving the yield on the 10-year Note to the highest levels since 2007. In response, gold prices endured their single intraday loss of the week, and it was this step back on Thursday that pushed the launch point for Friday's ripping gold rally back to $1870 instead of $1880.
As we've highlighted here, the war in Gaza is undoubtedly the primary driver of where gold goes next. This is expected to be even more evident next week, as the macro data calendar has little to offer as counterprogramming beyond another round of public commentary from key FOMC officials, including Fed Chair Jerome Powell himself. We expect that Powell's remarks and others will be closely watched as they pertain to how the central bank might anticipate a protracted, inflammatory war in the Middle East might impact financial conditions and, as a result, FOMC's monetary policy.
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.