Happy Friday, traders. Welcome back to your recap of the week in metals and currency markets.
At the time of writing this afternoon, gold is weakening a bit for the day, but shining bright with massive gains on the week representing six-year highs.
So, what kind of week has it been?
Gold Prices Surged Higher on Sunday Night & Monday Morning, Setting the Week’s Wild Tone
When we left off on Monday afternoon, gold prices are advancing from $1460/oz as global equities markets continued to shudder and moan under the increased weight of escalating trade war between the US and China. A lot of the discussion throughout the rest of Monday was centered around just how willing China would be to let their currency depreciate against the Dollar and whether it was all an indication that the Chinese side was giving up any hope of finding a resolution in the near future. The rest of the conversations on Monday was just stock traders screaming at a bunch of charts moving down and to the right. Either way, gold prices stayed aloft on the growing tailwind.
The Monday evening market close (with gold spot just above $1462/oz) would give investors a chance to survey the damage—the worst equity performance of the year to date, and a flight to safe-haven government debt so aggressive as to result in a record $15 trillion worth of negative-yielding bonds around the globe.
Signs of life would come, though, with the Asian market open where equities markets would start the rebound as the Chinese currency had a stronger fix than anyone expected signaling that the Chinese government (having been “officially named” as a currency manipulator by the US Treasury Monday evening) might not be quite ready to hit the trade war accelerator. Most Asian markets would end up in the green for the Tuesday session; European indices and eventually American stocks would follow suit. Despite the improved equity environment (at least temporarily) cooling the risk-off panic that had elevated gold prices, the yellow managed to hold on to most of its gains with $1460 acting as strong support and, taking that cue, buyers would step back into the gold chart by mid-morning on Tuesday and resume the drive higher. Gold spot would finish the day above $1475 and clearly had all the momentum to the upside.
Gold Price Rose to Vital Level of $1500 on Wednesday
That momentum held course in the thin-trading hours immediately following the market re-open Tuesday evening and gold price moved steadily higher towards $1480. Before the spot price could get there in an orderly manner, gold exploded higher as news broke that the central banks of New Zealand, India, and others were taking aggressive and proactive protective measures by easing monetary policy. As global rates sold off once again, gold and silver prices ripped higher and a return to $1500/oz gold was suddenly a very real possibility.
Because of the nature of the move, we spend some time on Wednesday breaking down the core drivers behind it and discussing the day’s trading; you can find that coverage here.
In the remainder of the week since our Wednesday coverage and in the absence of any new major headlines or macro data, gold prices have traded broadly as expected: oscillating above and below $1500 as the general mood of the market dictated. Equities and rates have recovered a bit of their losses, slowing gold’s rapid early week ascent, but not enough to convincingly break the uptrend in precious metals.
As we move towards the weekend, hopefully one much less eventful than our last, gold prices are lower on the day. The wider world of macroeconomic pressures has made what little hard data was on the calendar this week essentially meaningless for gold markets, but it is worth noting this morning’s decline in producer price inflation measurements - another small push towards further Fed rate cuts (maybe.) Meanwhile, the weekend profit-takers have been cashing out for now sold spot prices slightly below the $1500/oz line.
From that perspective, I would argue that Monday’s trading alone will be important to set the trajectory for the next move in gold prices: A return toward $1500 would be supportive of extending the uptrend, while further selling might suggest that we’re putting in a top for the time being. Of course, another round of unexpected trade-hostilities would change the landscape once again.
In terms of what we can plan for, next week we’ll start with a focus on the most recent measurement of consumer price inflation and trying to interpret how it might steer the Fed in September. We’ll also see another round of survey data on the US manufacturing industry.
Until then, traders, I hope you all get the most out of your weekend. I’ll see you back here on Monday for a breakdown of the week ahead in the gold market.