Happy Friday traders. At the end of a shortened week, gold prices and longs are licking their wounds after a breakdown of technical support levels on Tuesday.
So, what kind of week has it been?
Well, it was a week curtailed by the Good Friday/Easter holiday, but four days of trading was clearly enough to see gold prices finally crash through the support line that had held at $1280 for the last several weeks and ultimately take $15/oz out of gold prices for the week.
Monday: Evans Leans into the Fed Pause
The trading week started on a down-note for gold markets, with a Sunday night sell-off below the $1290 line of resistance. The selling pressure continued through the quiet European session and the start of New York trading, dropping to test $1283 at one point.
There was a brief spark of life for gold prices in the morning following the release of subtly underwhelming data in the NY Empire State Manufacturing Index for April, for which the headline gauge of current conditions was a positive, but the six-month outlook fell to a three-year low. In spite of the good feelings about the current situation, explains Bloomberg’s Reade Pickert, “the dimmer outlooks adds to signs that the manufacturing sector faces mounting pressures from the weakening global growth amid uncertainties over trade policies.”
The US Dollar weakened briefly as analysts broke apart the finer points of the report, and gold prices found some life off the lows. A mild but steady rally followed, and into the lunch hour it looked as if gold might retake $1290. The yellow metal’s failure to do so however started a slide back towards $1285 that would continue through Tuesday’s Asian trading and the European morning.
On Monday afternoon, Chicago Fed President Charles Evans said he can see rates remaining as they are until late 2020. Suggesting that the “Fed pause” remains persistent of course lowers investors odds of a return to the hiking cycle this year, but it’s also the latest in a round of disappointments for those who had gone as far as to anticipate and rate cut in 2019, the knock-on effect of which has been a strong recovering in the US 10-year yield.
Basically the entirety of the move in the 10 year yield off its lows can be explained by a big tapering in odds of a Fed cut this year
(simple increase in yields since March 27) pic.twitter.com/cI4AbJFfM3
— Luke Kawa (@LJKawa) April 16, 2019
As we would see in practice on Tuesday morning, a surging 10-year yield acts like a weight around the gold market’s ankles.
Tuesday: When the Levee Breaks
And so, in the face of somewhat up-trending Greenback and mounting pressure from steadily rising yield on the US 10-year, the $1280/oz levee finally broke on Tuesday morning. As more of the American market came online an hour ahead of the equity markets’ cash open, large gold positions were liquidated and spot prices crashed through the previously sturdy support at $1280/oz to new lows for the year.
#Gold prices have set a fresh 2019 low this morning, and this comes even as the #USD struggles around the 97.00 level. Where is $GLD heading? Get your #TechnicalAnalysis from @JStanleyFX here: https://t.co/gjKWFubw1S #XAU pic.twitter.com/KCm52fd59i
— DailyFX (@DailyFX) April 16, 2019
The damage was done by 9am EDT, and so even an unexpected month-to-month contraction in US Industrial Production and the accompanying shudder in US Dollar value wasn’t enough to put any kind of life into the shiny yellow metal.
Interestingly, while gold prices languished near the floor for much of the remainder of the trading session on Tuesday, the silver market recovered fairly quickly.
This is as good an example as any of how, due to its greater utility in various industries, silver is less susceptible to “sentiment trading” and can often rely on more fundamental factors to support pricing while gold suffers the whims of risk-on versus risk-off sentiment.
Wednesday: Gold Rests, the Trade Deficit Shrinks
Especially in comparison to Tuesday’s blood-letting in the gold markets, Wednesday was a pretty calm and flatly traded session for metals during which gold stayed pinned around $1275/oz. The one US data point of particular note was a second consecutive month in which the US trade deficit shrunk when it was expected to expand, according to the latest Balance of Trade report. While this positive data should lessen the pressure on the Washington side of US-China trade negotiations, the Chinese trade delegation’s position seemed to become more tenable for them as well as strong growth and industrial production data late Tuesday night caped off an unexpectedly strong month of March for Chinese macro data. With internal economic pressure easing on both sides of the trade dispute, we could see talks drag on a bit longer as the opponents dig into their positions—but you can probably expect the White House to force the issue as we get farther into the Presidential election cycle.
Thursday: Impossibly Low Claims Get Impossibly Lower, Retail Resurgent
Thursday would effectively net-out to a flat trading day in terms of open/close pricing, but there was a little bit of intraday churn. After looking as if the market would try to reclaim the $1280/oz price level in European trading, gold by the ounce had started setting up some measure of support back at $1275 early in the New York session before getting whacked by another strong batch of US economic data at 8:30 EDT.
The flashy headline for a third consecutive week goes to a stunningly low jobless claims number, as new unemployment fillings marked a 49 year low at 192,000 for the week. In what I might argue is the more important release from a macroeconomic and US Dollar perspective, Retail Sales data for March was also well above expectations.
— Bloomberg Markets (@markets) April 18, 2019
The one piece of price-positive news for gold traders that I would take out of this week is that even with the big boost to the US Dollar that Thursday’s economic data laid on table the market didn’t see another collapse in gold prices and in fact the market managed to rally back to (and above) $1275 in the afternoon. With the spot markets for the week closing at a tidy number, $1275/oz, it might be from here that we see gold prices try to establish a new upward channel given the right stimulus next week.
With most markets either empty or offline for the Good Friday holiday, we can take a look around the corner to next week. The majority of the economic calendar will be occupied by the housing market data for March, but importantly we’ll also get our first look at Q1 GDP for the US.
Enjoy your weekends, traders. I’ll see you back here on Monday, bright-eyed and bushy-tailed, for a look at the week ahead.