GoldPrice.

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 may continue to into the future.

After tailing-off to start the week, as investors positioned themselves ahead of the first interest rate hike from the Federal Reserve in more than three years, gold prices have rallied promisingly following the FOMC’s announcement and Chair Powell’s presser. The yellow metal looks set to close the week with a welcome cushion between current bids and support at $1900/oz.

So, what kind of week has it been?

The turn that traders and money managers across so many asset classes—not least of all, gold—have been planning for and tracking since the autumn of 2021 finally arrived: The Federal Reserve hiked interest rates at the close of Wednesday’s FOMC meeting, for the first time since 2018. And while the brass tacks of what the US’ central bankers delivered was in-line with market expectations, the recovery and resilience that gold has shown after initially dropping to support with the FOMC’s announcement is a more positive development than would’ve been anticipated by precious metals traders and investors.

The target Fed Funds Rate was increased by a margin of +0.25%, the standard “full step” for the Fed, as was broadly expected by the marketplace and analysts following Fed Chair Jerome Powell’s most recent testimony before congress. Further aligning itself with the investors’ expectations, the median of the updated “dot plot” which (anonymously) marks FOMC participants’ expected path for policy rates accounted for seven hikes in 2022—one at each meeting from March, forward—which had become a more prevalent investor view in recent weeks.

Still, there was (as there often is) a delta between what investors have decided the Fed will do over the course of 2022 and what the Fed would signal in the March meeting: the median dot moving to account for hikes at every meeting remaining this year (an unusual path for the FOMC, to say the least) definitely wasn’t on a lot of Fed watchers’ bingo cards this time. Chairman Powell was also more hawkish than expected in his press conference, pushing aside fears that rate hikes will induce a new recession and suggesting that, thanks to a tightening labor market and a still-strong economic recovery, there will have to be a sizeable opposing force in order to shift the Fed off of its planned path for fighting inflation. (That’s not to suggest that the market consensus was for the Fed to play timid (dovish) in its assessment of, or opposition to, inflation pressures; but with the outbreak of a land war in Europe and the geopolitical risk that that brings to market, expectations baked in a little bit more caution from the Fed than we saw on Wednesday.)

Prior to Fed Day, gold’s week started with a slide. From Sunday night’s opening bids, through to the start of US market hours on Wednesday, spot prices for the yellow metal trailed consistently lower as investors positioned themselves ahead of the FOMC’s announcement; prices for Treasury bonds fell at the same time, under the same pressures.

And the most immediate reactions in gold and in government paper to the FOMC—at least, to the post-meeting announcement confirming a rate hike—went off as we might traditionally expect: as Treasury rates spiked (sending the 10-year yield near to 2.2%,) gold, which we, as a starting point, expect to fare poorly under expectations of higher rates, dropped like a shiny yellow rock before finding support at $1900/oz in the spot market. The apparent strength of this support at $1900 is an encouraging sign for gold prices, which may have a reliable floor there for absorbing moment of volatility between now and the final approach to the May FOMC.

However, there were signs from the start that markets might be reacting differently than expected to the 25-bip hike. While history would have suggested that US stocks would have a mostly negative reaction to the Fed making the access to money less cheap and easy that it has been during the rally of the last two years, we saw a decidedly inverse reaction. All three major equity indexes in the US ultimately rose to make strong gain on Wednesday, which would turn out to be the mid-point of a massive three-day rally for US stocks. (It may yet be a four-day run for any or all of the indexes, though performance is more mixed on Friday. Nonetheless, it’s been a dramatic turnaround for US stocks with the S&P closing in on its best single week in over a year.)

By the time Powell’s post-meeting Q&A got started, gold began a reversal that has continued into a moderate (but mostly stable) rally through Friday. Spot prices rebounded back above $1925/oz with relative ease by Wednesday evening, with markets pricing gold at a post-FOMC high just below $1950 as midday Thursday. (Treasuries again moved in tandem with gold: The US 10-year yield pulled back well below 2.15% before evening out.)

The tailwind for stocks has been described as a “relief rally”—relief, primarily, that the Federal Reserve is now fully active in the fight against decades-high inflation; a sense of relief that currently outstrips any jitters about higher rates and tighter money markets impinging on economic growth. We think gold’s post-FOMC recovery has been a relief rally of its own: while there’s certainly some degree of inflation-hedge-buying as a result of the Fed again acknowledging and underlining that risk, but nervous holders of long gold or Treasuries position surely let out a held-breath as the Fed opted out of hiking by a double-step of +0.50% this week and didn’t seem particularly keen to do so in the near future either.

Next Up

We’re only at the start of this hiking cycle from the Fed and, barring any major exogenous shocks, more than a year away from the finish; so, in the days, weeks, and months ahead, markets and investors will continue to track and shift around signals from the Fed and from the key macroeconomic data that factor into their decisions; and it’s more likely than not that investors will express their views on the next Fed move(s) in the gold market as much as anywhere. The most pressing “unknown” will remain the possibility that the Fed gets spooked (by still-stubborn inflation) into making the big +0.50% hike sometime later this year. Any signal that that is becoming more likely, we expect, would present a much stronger obstacle to gold’s chances of moving back towards $2000/oz in a sustainable rally.

For the more immediate future, markets look set for a generally quieter run through Friday and next week; with the major caveat of, of course, that there is still a war of atrocities continuing in Ukraine, and geopolitical headline risk will be the key driver over the next 2-10 market sessions.

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 on Monday for our preview of the week ahead.