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 in the future.
Here’s what you need to know:
- Gold headed for its first weekly decline in more than a month, even after a sharp Friday rebound tied to a much weaker-than-expected February jobs report.
- A stronger US Dollar and a spike in oil prices following escalating conflict in the Middle East created major headwinds for gold early in the week.
- Friday’s risk-off move helped gold recover some ground, but not enough to fully erase earlier losses.
- Markets are now looking ahead to Wednesday’s CPI report, which could shape expectations for Fed rate cuts and determine gold’s next move.
February Jobs Miss Big
Gold prices are looking at the metal’s first week-over-week decrease in over a month, despite a sharp rally of more than $60/oz on Friday morning.
The underlying factors of gold’s weak performance over the last five sessions remain mostly unchanged, but markets on Friday morning were unable to ignore an incredibly disappointing February Jobs Report, which saw the headline unemployment rate in the US increase to 4.4% while the number of jobs in the economy decreased by nearly -100K, versus expectations of an anemic +60K increase.
Global markets were swallowed up by a major risk-off swing on Friday morning, both just before and following the open of cash markets in the US. That move pushed gold spot prices as high as $5,160/oz, where the yellow metal seems to be finding resistance, while knocking US equity markets lower at the same time.
All three major US stock indexes are looking at a loss of -1% or more on the day. Despite Friday’s rally, the sharper sell-off that hit gold prices at the front end of the week still has gold poised for a weekly loss of roughly -2%.
The Wartime Dollar Dominates
The aggressive selling that hit gold on Tuesday was driven by the same underlying macro factors behind its initial spike on Sunday night and Monday morning.
As traders and investors further digested the ignition of the US and Israel’s joint war in Iran, two gold-correlated commodities came to the fore at the precious metal’s expense: oil, alongside other parts of the energy basket, and the US Dollar.
As investors fled to less risky positions, the clear preference was to back the US Dollar in wartime. A significant rise in the US Dollar Index coincided with gold’s drop on Monday and has held firm across the same intra-week period in which gold prices have been suppressed.
At the same time, with the closure of the Strait of Hormuz as a critical chokepoint for commodity shipping, and the more general destabilization of the crude oil supply chain that comes with any conflict in the Middle East, oil prices have climbed throughout the week to a Friday peak above $90/barrel.
While one major commodity’s rise can often lift the whole basket higher, in this case gold appears to be dragged down on one hand by clear reasons to prefer at least short-term positioning in crude as it climbed, and may continue to climb, higher. On the other hand, ripping oil prices have likely forced a number of margin calls against commodity traders’ portfolios, at which point liquidating profitable gold positions becomes an easy call.
Fed Expectations Back in Focus
The less volatile question of projecting the next move by the Federal Reserve has not completely vanished from the minds of the market.
Further adding to the depressed condition of the gold market, several analysts’ desks are repricing the next rate cut to be further out. We expect the next turn here to come with Wednesday’s CPI release—either a removal of this headwind for gold if the data makes too strong a case for earlier cuts, or an exacerbation of it if consumer price pressure unexpectedly worsens.
Next Up
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see you back here next week for another market recap.
