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 into the future.
Gold prices appear to be butting up against now-consolidating support at $2500/oz as the marketplace moves closer to the first FOMC rate cut since the Covid crisis.
So, what kind of week has it been?
Platitudes and cliches get used too often to oversimplify a description of gold trading (just as in other high-volume asset classes), but it really does feel direct and accurate to say that the gold market has found itself at a crossroads this week.
On the bearish side, traders and investors appear to be losing their appetite to bid aggressively on the yellow metal north of $2500/oz after the all-time highs of recent weeks. Whether due to a thinner volume of eager buyers at the moment because so much open interest came in during the run between $2400 and $2500 or because the market surmises that $2500, but not any higher, is the appropriate valuation for gold spot prices when the FOMC is expected to cut interest rates by -0.25% later this month, gold’s chart held a relatively consistent level at or just below that key psychological line through the first half of the week (Tuesday and Wednesday, as most markets were closed on Monday for US and UK holidays.) The more optimistic note (though it falls short of being “bullish”) would be that even as the precious metal has dipped below $2500/oz more often this week than it has attempted to rally beyond it, support appears robust only as low as $2490.
We did see one strong, briefly sustained push in the other direction. Following the Thursday release of ADP’s reporting on private payroll jobs added to the US labor market in August— which came in well below expectations (of +145K) and even below 100K, with downward revisions to prior months— markets had a strong reaction. The obvious line of thinking from traders and money managers was that this kind of tepid labor data not only cements the need for(and expectation) for the Fed to cut rates this month but increases the odds of a “double” cut of -0.50%. In the trading session that followed, gold prices rallied aggressively as the US Dollar continued to ebb, and prices for immediate delivery climbed back to $2515 and higher.
Curiously, although Friday’s non-farm payrolls number, as the crux of the last Jobs Report we’ll see before the next FOMC meeting and decision, followed the same disappointing tune as the ADP data set, gold is having a decidedly inverse reaction. In the knee-jerk reaction to the NFP coming in at +142K (nearly -20K short of projections) and the prior month’s value being revised to a somewhat shocking +89K, gold spot prices spiked towards $2550 for the briefest moment before reeling back lower. In the trading hours that followed, gold continued to fall (excluding a brief rebound as cash markets opened, which had little staying power.) This is despite Treasury yields, the Greenback continuing to weaken, and the major indexes of the US stock market running red in light of the disappointing August Jobs Report.
This pattern, then, seems to suggest the market is unsure that gold should be valued at August’s record high prices at the first (forthcoming) phase of lower interest rates and lower yields. It’s possible this is because of an expectation that easier monetary policy will drive more of a boom in equities through the end of the year, encouraging greater risk appetite and lighter interest in a safe-haven play like gold.
We’ll look to next week’s trading to try and settle the uncertainty. The key data point there will be the CPI report due on Wednesday— the final keystone data point that will be released before the Fed announces their ultimate decision to lower rates the following week and by how much.
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.