Good morning, traders; Welcome to our market week preview, where we take a look at the economic data, market news and headlines likely to have the biggest impact the price of gold this week and beyond, as well as market prices for silver, the US Dollar, and other key correlated assets.
Gold prices are trading higher this morning, shortly after the start of stock market trading in the US. While we saw a continuation of the inverse correlation that has driven gold markets for much of the last month—rising Treasury rates driving gold spot prices lower, and vis versa—the volatility in sovereign debt markets has been much milder overnight as the benchmark US 10-year note’s yield is consolidating above 1.6% without finding purchase much higher than that.
With short-end yields remaining elevated (relative to the last year,) and gold finally maintaining some strength well above $1700/oz at the same time, this week’s macro calendar—particularly Wednesday’s FOMC meeting—could show us that the yellow metal has finally rebuild consistent support. This would provide a decent platform from which the precious metals could benefit from the reflation trade that is likely to lift the broader class of raw commodities higher has growth accelerates in the recovering US economy.
For now, let’s take a look at the calendar items this week.
US Economic Data to Watch
Tuesday, March 16 at 830am EDT // Retail Sales (Feb)
[consensus est.: -0.5% MoM // prev.: +5.3%]
January’s Retail Sales data strongly outperformed the expectations of most analysts and economists; But because that massive uptick was primarily driven by a one-time $600 stimulus payment to most American consumers, we should expect February to be a reflexive snap-back, according to most observers. The consensus projection for a moderate contraction month-over-month is reasonable, then, however there are a number of analysts calling for pullbacks as deep as 2-3%. Part of the uncertainty is due to accounting for the winter storms that effectively shut down parts of Texas last month, an event that we’ll probably see pass-through to other February data sets as well. Last month’s big positive move certainly encouraged equity markets but also the reflation trade that we’ve seen captaining a lot of market moves since the start of 2021—this put a lot of downward pressure on gold prices. It’s possible that a deeper contraction in Retail Spending this week will have the opposite effect, but that’s tough to firmly project without knowing what shape or mood the bond market will be in on Tuesday morning.
Wednesday, March 17 at 2pm EDT // FOMC Interest Rate Decision
[No changes to monetary policy expected.]
Since we already know (as much as possible) that there will be no adjustment to short-term interest rates or other monetary policy measures announces this month, and since it’s very unlikely that Chairman Powell, in his press conference, will offer any new comments of concern or resistance against the recent rally in Treasury yields that has so many inflation hawks riled up, the focus of most analysts and investors will be on the revised economic projections released this quarter. The time horizon now moves forward (to 2023) and, participants’ outlook for GDP growth and unemployment rates will have to be adjusted to account for the $1.9 trillion fiscal stimulus packaged signed into law last week. This could provide us an opportunity to assess just how sensitive FOMC members believe the Fed will (or should) be to “persistent” inflation over 2% driving an interest rate hike: It can be assumed that many participants will have to assume that inflation surpasses that 2% threshold by the end of 2023, so we can compare whether the anonymous dots projecting interest rates biggen shifting higher at 2.1%, 2.2%, or higher. In recent weeks, communication from the Fed—from Powell in particular—has served to calm volatility in the bond market and pressure on stocks; However temporary, I’m inclined expect that same again given the importance of messaging after an FOMC meeting. Combined with “official” projections of rising inflation, I wouldn’t be surprised to see Wednesday afternoon’s news being broadly supportive of gold prices, even if there are not strong tailwinds to push gold higher.
Thursday, March 18 at 830am EDT // Initial Jobless Claims
[consensus est.: +700K // prev.: +712K]
Considering how sticky the 800K level was for weekly jobless claims going back to the end of 2020, it seems like it would be a big deal to see the labor market now recover to (or even below) 700K so quickly. Given how (understandably) inaccurate the consensus Jobless Claims prediction has been over the last few months, I have two thoughts looking at this date: I’m strongly inclined to expect a print at least somewhat higher than the consensus (for the reasons I mentioned,) but if this week’s number does get to 700,000 or below I’d anticipate a strong spike in risk appetite going into that morning’s market open. Because gold has fluctuated this month between being an important inflation hedge (and part of the commodity-lifting reflation trade) and just being a counter to the US Dollar it’s tough to say from Monday’s vantage point how the yellow metal would react to such a data point on Thursday. So, I think the release will be worth keeping an eye on.
And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here on Friday for our market-week wrap up.