Happy Friday, traders! Welcome to our weekly recap of the action and drivers in the precious metals and Dollar markets.
As we slide towards the close of a tightly traded week for gold prices, the yellow metal is holding on through a typical (but mild) Friday afternoon sell-off to maintain support at $1490/oz; silver spot prices have once again set above $17.50/oz.
So, what kind of week has it been?
Risk Appetite Weaker on Monday But Rallies on Tuesday to Send Gold Prices Lower
With the holiday, there was no meaningful US data to contend with, nor was there much in terms of news flow. Market sentiment seemed rooted in the “risk-off” camp, driven to some degree by the pessimistic tint to the reports around eleventh hour Brexit negotiations that dimmed Friday’s optimism that the EU and UK might hammer out a deal. The primary mood-killer in the lightly attended US session appeared to be the market’s closer look at the “phase one” handshake deal that the was announced between the US and China at the end of last week. On closer inspection, it’s become clear that all we have at the moment is a handshake deal that it’s lacking in formal specifics. So, while risk markets were willing to trade on the idea that the situation may not deteriorate further in the near term, there’s low confidence in the idea that US-China trade relations are about to improve. To that end, it was becoming clear that scrutiny and specificity—which the Chinese were already asking for on Monday—might be the enemy of this initial deal, and the US delegation that seems to consistently prioritize market-positive headlines over brass-tacks agreements.
These negative vibes were enough to support the $1490 level in a sluggish gold market while notching a losing day for all major US equity markets.
Tuesday saw that support removed, as risk appetite rolled back into the market. With the trading week getting started in earnest, it also marked the start of earnings week in the stock market. Some good performances early on and the mild cessation of the trade concerns the dominated Monday’s narrative (not from any concrete improvement to situation, but rather a lack of new headlines) drove a solid rally for equities and the Dollar. In response, the start of the US trading day saw gold spot prices pushed bellow $1490 support; the yellow metal was pulled down further once the US stock markets opened and would ultimately find support at $1480. From this point, the gold chart for Tuesday mirrored the sideways movement from Monday, just $10 or so lower.
With the equities rally glued to the driver seat on Tuesday, it’s optimism temporarily overshadowed some negative headlines that may reassert some risk-off pressure in the near future. For one, the IMF’s updated outlook for global growth was cut once again (this time from 3.2% to 3.0%) with the finger pointed at growing trade tensions around the world. For another, we saw the emergence of the renewed fighting along Syria’s border with Turkey—and America’s involvement in it (arguably, it’s responsibility for it) – as a new driver of geopolitical uncertainty for markets.
Neither narrative seemed to inject instability into the markets this week, but I would argue that they both contributed to a low-hum of worry in the background of this week’s trading which added support to safe-haven assets like gold.
Ugly US Retail Sales Data Boost Gold Prices Back Above $1490/oz
From that level of support, gold spot prices got a lift back to $1490/oz (and occasionally higher) on Wednesday morning with the release of the week’s only market-moving US data; retail sales data for September slumped in at -0.3% (mom) versus as expected number of +0.3%.
Now, trying to argue for positives in a sub-zero retail number is very much a “lipstick on a pig” sort of situation, but I do think it’s important to point out that the previous month’s data was also revised higher and I think this took the sting out of the initial flight from risk that we saw in the markets. Furthermore, while the Dollar took a real hit on the news, I’m of the belief that this data point on its own isn’t nearly enough to influence FOMC voters in a meaningful way.
My (somewhat uncharacteristic) assertion that everything is fine aside, Tuesday’s uptick in risk appetite was clearly gone nearly as quickly as it appeared. As an indication of this, after gold prices regained the $1490 mark on Wednesday morning, they have yet to give it up despite the lack of momentum to move higher.
Above a Current of Uncertainty, Gold Prices Trade Sideways to Wrap the Week
As I said, the week has been pretty light on hard data, so it’d been headline flow that has determined the market environment: We’ve seen US-China negotiations slide back into a position of tension, this time regardless of actual trade conditions as the building blocks of diplomacy between the two nations seem to be wobbling; Despite promises of cease fire, the concerns around Turkish military operations and US troops in the region are far from going away; and in the UK the brief flash of relief that the British government and the EU have managed to agree on a last-minute Brexit plan has been tempered by the realization that Prime Minister Johnson still has a very difficult hill to climb on Saturday’s vote, the UK’s final opportunity to approve a Brexit deal in parliament.
Gold prices settled back at the $1490-level to tie up Thursday’s trading session, and from there Friday’s “action” has really been anything but. Barring the end-of-week surprise shenanigans that the White House has trained us to be wary of at this point, it looks like the week will wrap up at a similar price. There’s always the potential for a general sell-off ahead of the weekend, but gold traders seems pretty satisfied with this level ahead of next week. It’s very much the mood that started Monday: confidence that stability won’t deteriorate, for now, but very little belief that the environment for risk-taking is improving.
Next week’s data calendar is similarly sparse to our last five trading days, so it’s good that we’re getting familiar with the economic and geopolitical narratives that came into play this week—they will likely be at the controls for the next five trading days as well. On Monday we also may have some fallout for Saturday’s “final” Brexit vote to deal with as well.
Until then, get out and enjoy your weekends. I’ll see you all back here on Monday for a look at the week ahead.