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 other key correlated assets—and may continue to into the future.

Gold prices have undoubtedly been through a ringer this week, with two of the most important macroeconomic moments of 2022 (and relevant to 2023) coming down mid-week. Coming out of the other side, the yellow metal has lost a temporary grip above $1800/oz, but still holds good gains for the week.

So, what kind of week has it been?

Heading into this week—the last week of the year before a lot of trading activity and market depth falls away as traders and managers take the holidays off—we were expecting two consecutive days of major macroeconomic news that would bring some volatility to the markets. We were not disappointed.

On Friday morning, the gold market has put in a steady climb but primarily looks to be calming en route to the weekend after running the gauntlet of having a crucial round of US inflation data delivered on Tuesday, followed by the last FOMC meeting of 2022 the very next day. Gold traders, and Investors generally, held a cautious stance at the start of Monday’s trading, having mostly come to a consensus on expectations for the mid-week rate hike but still uncertain how the November CPI report might change things or how the Fed would lay out its policy path projections for 2023. There’s nothing quite as effective for driving near- to medium-term optimism in the market than the market (i.e., the majority of investors) wanting to be optimistic, as we’ve learned from repetition in 2022. Sure enough, by mid-session on Monday US investors had set expectations for another rosy report on consumer inflation, leading the Fed to signal more willingness to ease off the campaign to slow the economy further; the result was a strong performance from equities by the end of the day, with all three major stock indexes rising by well over +1%. Gold’s spot market moved mostly sideways through the session, dragged maybe a bit lower by the optimistic rise in pure risk appetite that lifted equities.

The first phase of the Fed's rate increases was big, fast and relatively widely supported.

The second phase is getting underway, and divisions are emerging.

The outlook for inflation and wage pressures sits at the center of budding disagreements https://t.co/PJevUzeSwz

— Nick Timiraos (@NickTimiraos) December 12, 2022

Tuesday’s CPI report certainly delivered on the first half of the promise that the market made to itself. Core inflation came in cooler than expected again, both month-over-month and as compared to one year ago. The more volatile, more headline-grabbing overall inflation rate slowed by more than expected in both measurements as well. As investors leaped on this data set as a signal that the Fed, surely, would have to make more dovish projections and/or statements following this week’s FOMC meeting, the initial market reaction post-CPI was not subtle. But it was pretty much in line with what we’ve come to expect in the second half of this year: equity futures saw a jolt which was carried through by the cash market once trading opened, as most major asset classes the price in USD enjoyed a strong tailwind from a falling Greenback. Gold, in particular, rode the elevator higher en route to a peak above $1820/oz.

By the afternoon, it did seem like investors’ exuberance was being slowly overtaken by a communal memory that the Fed, through all of its communication functions over the last 90 days, have messaged pretty strongly that they will remain committed to their current tack, steadily (if less aggressively) tightening financial conditions until inflation has not only “passed peak,” but truly started to fall. It took until later Tuesday for it to dawn on the market that maybe the CPI report had been a great step in the right direction, but not enough to convince the Fed to slam on the brakes. The consequence was an overall softening of the strong rallies of the morning, and a bit of a rebound for the Dollar. Still, commodities like gold consolidated a healthy portion of the post-CPI gains while US stocks still closed the session with decent pickups for the NASDAQ, Dow, and S&P 500.

For the first half of Wednesday’s trading, charts moved mostly sideways with some continued softening across the board (in both USD-denominated risk assets and safe havens like gold and US Treasuries) ahead of the Fed. When the clock struck 2pm (EST), Jerome Powell & Co. more or less delivered on the promise and/or threat that investors had imagined for themselves.

Key Fed Takeaways:

- Fed slows rate increase, as expected
- But emphasizes that it will do more to restrain the economy
- Rates to 5.1% next year, up from 4.6% prev forecast
- Unemployment expected to jump (4.6%)
- Growth will pull back sharply (0.5%)

— Jeanna Smialek (@jeannasmialek) December 14, 2022

The policy rate hike of “only” +0.50% was certainly a breath of fresh air for equity investors, even if it still brought the benchmark bank rate to the highest mark in 15 years after triple moves of 75 basis points had become the routine this year. Less welcome was that the central bank signaled—not just through Chair Powell’s own remarks but the updates to the Staff Economic Projections—that the game plan remain unchanged aside from the pullback to 50 basis points. The most important points for investors (and the most concerning for gold price projections): the consensus “terminal rate” for next year has moved to a higher level than expected, and the FOMC (for now) doesn’t foresee enacting the first rate cut until 2024.

Markets have been generally unhappy about the news, with the investors heavily positioned in some asset classes seeming to be more “surprised” than others. Comparing the reaction in the spot market for gold, against that of US stock on Thursday and Friday, provides a good example. Gold prices have certainly reeled back post-FOMC—spot bottomed out near $1780/oz on Thursday morning, but the yellow metal’s decline that followed the “elevator up” of Tuesday’s rally was much more in the mode of “stairs down,” a steadier easing that occurred mostly as the overnight markets in Asian and Europe had the opportunity to digest the FOMC news. Conversely, global equities slid overnight as well but have had a much rougher Thursday ride, with the Dow shedding more than 800 points by midday. For most of the US trading session on Thursday gold has held relatively steady, and did so on Friday morning as well before starting the moderate climb we see today, which may well be a knock-on effect of the same uncertainty and tumult in stocks.

The hope, for those of us that look for some sense of stability in markets (even if the opposite is often a boon for gold,) would have been for the stock market slide to mellow out before it left a dent in Friday’s session. Unfortunately, as gold kept climbing the same risk-off sentiment has not so much put a dent in equities as much as it left a crater. Investors are concerned enough about the Fed’s continuing tightening (a worry amplified by a poor showing from the most recent Retail Sales data) to have equities bleeding off more than 1% today already. It’s no surprise that gold prices would enjoy a good risk-off tailwind as equities trudge through their worst December since 2018; but we would be cautious rather than confident, from a gold perspective, because a persistent instability in financial markets at this time seems more likely to drive investors back to USD and another bull-run for the Dollar rather than the yellow metal.

Next week (and the following week as well) the macroeconomic data and newsflow will downshift to a crawl, most likely. But, more than that, market depth will likely get very shallow, meaning that volatility could be amplified (slinging gold prices in either a positive or negative direction) around any re-positioning. Here’s hoping for a smooth glide into the last ten trading days of 2022.

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.