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 to into the future.
There’s no nice way to say it: gold prices are ending the week at the tail of another ugly skid, despite a likely inter-day gain on Friday.
So, what kind of week has it been?
The summertime doldrums have not been kind to the gold market in 2023, and this week has been absolutely no exception. Removing any need for a deep understanding of technical chart analysis or macroeconomic pass-throughs, even the most basic numbers paint a bleak picture in shiny yellow. Not only has the spot price for gold fallen below key support at $1900/oz with no real signs of an effort to recover, but (as of Friday morning), the gold market is closing in on its third consecutive week of declines. Even if Friday’s session ends with gold in the green, the nine-day slide in spot prices marks the precious metal’s longest losing streak in over five years.
It’s no surprise that this persistent slide in gold markets has coincided with— and, for the large part, been exacerbated by—a strong bull run in the US Dollar that has taken the Greenback to a two-month high against its primary trading partners. In a mostly quiet week from a headline and data perspective, these moves continued to be driven by the current investors’ expectations for monetary policy from the Fed through the remainder of 2023.
Earlier in the week, it looked as if gold might at least be able to hold a line of psychological support at the key $1900 level. We had been keyed into the release of new Retail Sales numbers on Tuesday morning, expecting that an as-expected, or better, print might apply untenable pressure on gold prices as the market digested another green light flashing for the Fed to maintain Hawkish policy and hikes into 2024. While the July retail data did outperform the consensus projections, gold spot prices rode relatively flat through Tuesday’s session, near $1905/oz at the close. Looking back at the trading that has come since Tuesday afternoon, it’s possible that the reaction we anticipated to a number like this for gold and the Dollar may have just arrived on a delay. Moving into Wednesday morning (in the US,) investors appeared to adjust their positioning in gold and in the US Dollar— not to mention another push higher in US Treasury yields— ahead of the afternoon release of discussion minutes for the July FOMC meeting. It was in this shift that the gold chart fell below $1900, with no notable resistance from buyers attempting to hold a line. Evident from this move, and others, was that the market suspected the Fed’s meeting notes would do little to refute the suggestion that the Fed could call for another interest rate hike of +0.25% as soon as next week’s Jackson Hole Symposium.
From that perspective, the FOMC Discussion Notes didn’t disappoint, offering a recap of the July meeting and its decision to hike rates again after just a single inactive meeting that the market had no resistance to reading as a hawkish signal for a policy through (at least) the end of the year. There are three clear signals from the Fed Minutes that color the argument for continuing restrictive monetary policy, which, in doing so, drove the Dollar higher and kicked the gold chart down a hill to a low of $1890/oz: 1.) the decision to hike was agreed by “almost all” participants, suggesting little-to-no growth in the more dovish camp at the central bank; 2.) participants continue to acknowledge the risk to stability posed by inflation still remaining “high,” but also seem to be downgrading their assessment of the recession risk posed by the campaign of tightening financial conditions in order to quell said inflation— that is, they see a need to continue their current course and a weakening of the core argument against doing so; 3.) the FOMC as a body seems quite comfortable with taking each decision to hike on a “data dependent” basis, and the most recent key economic data has offered yet another wave onward for the Fed’s hawkish outlook.
Gold is recovering modestly on Friday following another delayed-reaction sell-off on Thursday that had put in the weekly lows around $1884. It’s a faint glimmer at the end of the yellow metal’s brutal week, but it would be difficult to summon a sense of optimism for the rest of August, maybe for the rest of 2023. By and large, gold will again be at the mercy of the market’s evaluation of policy prospects next week, given a virtually empty economic data calendar. All focus through the week, not just on the gold market, but any instruments sensitive to the US Dollar (and the Dollar Index itself) will drift towards the star of the gathering of central bankers in Jackson Hole and Fed Chair Powell’s keynote address on Friday.
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 market wrap.