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 logged its second straight weekly loss, retreating below $3,900/oz before rebounding to hold $4,000/oz support.
- The Federal Reserve cut rates by 0.25%, but the move was widely expected and failed to ignite a major rally.
- Markets remained cautious amid the ongoing U.S. government shutdown and muted economic data releases.
- Central bank gold buying offered late-week support, helping stabilize sentiment.
So, What Kind of a Week Has it Been?
Gold prices are looking at a second consecutive loss week over week, following nearly ten weeks of gains. While it’s bled a great deal of monetary value out of the metal market to end October, it’s also presented the market with proof that there remains support at key levels. And the yellow metal has shown strong indications that this is the case.
Fed Rate Cut Overshadowed by Market Expectations
With the U.S. government shutdown now having run through the length of October and still showing no viable signs of ending, the main focus across all major asset classes tied to the U.S. dollar was Wednesday’s FOMC meeting. In advance of the announcement that was generally seen as a foregone conclusion, gold prices sold off sharply to start the week. To some extent, we expect this was a sign of some pre-FOMC jitters where investors and traders who held already profitable long positions in gold decided to lock in profits in case Jerome Powell & Co. broke away from the base case. But it was likely more directly an effect of trade tensions between the U.S. and China, having warmed over the weekend ahead of a summit in South Korea between the leaders of the world’s two largest economies.
The steepest slides for gold prices came on either side of Monday’s U.S. trading hours, in the early morning and then on Monday evening. The precious metal initially found and held solid support at the key level of $4000/oz throughout the New York session, and then dropped precipitously again as the Asian traders stepped to the fore. Here, gold spot fell as far as $3905/oz, the nadir of the week.
Fed Delivers 0.25% Cut — but Markets Shrug
On Wednesday, the Federal Reserve delivered as expected and announced a cut to overnight borrowing rates of -0.25%, the second cut in a row and just the second this year. Gold prices had recovered to within touching distance of $4000 by this point, but given how thoroughly the expectation for this rate cut had taken hold, financial markets en masse yawned at the news, and gold failed to provide the surge that we were looking for, given the added headroom after Monday’s sell-off. This may, in some ways, be a result of Fed Chair Powell making an effort to underline that a third successive cut in December is not a certainty and to generally take a slightly hawkish tone.
Central Bank Buying Offers Late Support
Although somewhat disappointing in the immediate afterglow of the Fed’s rate cut, spot prices for gold remained at or just below $4000 on Thursday morning. On the tail end of the week, some less critical inputs have lent a tailwind to the yellow metal, though, and that late boost is what’s allowed price to regain a hold at $4000/oz, although the grip on Friday afternoon still seems tenuous at best. Still, gold bugs seem heartened by a reported uptick in central bank buying.
Looking Ahead: Can Gold Hold $4,000?
How reliably gold can hold on to this historically elevated position will be the major question of next week, and one we have trouble making projections about, because we may again be denied any useful inputs to leverage. Instead of tracking macro data releases that for now seem unlikely to come, next week, gold markets will have to focus on modeling the economic impact of the U.S. federal shutdown moving into its second month, and any new insight that may come from key FOMC officials making the rounds of public appearances while investors and economists try to reckon what the December decision will hold.
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.
