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 spot prices have been on a week-over-week rally, unbroken for more than a month. With volatile undercurrents lifting the precious metal higher than ever.

So, what kind of week has it been?

After a steep leg upward on Monday evening (US time,) gold has mostly traded in a pattern of consolidation around the recent record of $2390/oz. Despite a general lack of volatility (with one notable exception being Thursday night’s short-lived risk-off spike above $2400,) the yellow metal is set to turn in its fifth consecutive week-over-week gain on Friday.

The macroeconomic data calendar was light this week, and we only highlighted two reports as worth tracking for potential impact on the gold (and related) market: Monday’s Retail Sales numbers for March and the newest Philadelphia Fed assessment of activity in the manufacturing sector of the US economy, which printed on Thursday. The top-line numbers on both of these data sets came in much stronger than the market consensus anticipated, which appears to have been interpreted by investors as immediate signals that the FOMC is under no immediate pressure to cut interest rates sooner than later (the idea being that these strong economic data points and recent others run counter to any argument that the US economy is under threat of a recession if monetary policy is not loosened in the near term.)

In recent history, up until the start of this year, any signal that rates were either going to elevate or eventually any signal that the (presumably) inevitable rate cuts were going to be pushed farther into the future brought bearish pressure down on the gold market. This is because of the long-standing inverse relationship of gold prices to market interest rates, to which precious metals are typically very sensitive. In the last 6-8 weeks, however, we’ve seen an older buy-case for gold become the most dominant factor: the safe-haven play. Where higher rates for longer previously kept some kind of ceiling on gold’s chart by reducing interest in a non-yielding asset, we appear now to have moved into a phase where consistent signaling of those same “higher” rates has made investors worried that the Federal Reserve will hold for too long and—even if the more traditional macro data suggests it isn’t just around the corner—nosedive the US economy into a recession at a particularly bad time for the global economy and geopolitical situation.

Because there is a strong argument that we’ve now fully shifted into this trading paradigm, this week looks like a good time to reestablish the three main drivers that seem to be driving gold’s recent record-setting rally; two that are closely interconnected and for which we will continue to have (relatively) predictable information flow, and an independent third for which we’ve seen there can be a new, volatile turn at any moment.

Starting with the outlier, for which we lack the ability to really anticipate or plan around: the deepening sense of geopolitical uncertainty outside of the US and, most recently, in the Middle East. After tensions have already been running high in the region for months since the re-sparked violence between Israel and Palestinians in the Gaza region, the sudden exchange of live ordinances between Israel and Iran over the last ten days has poured fuel on the fire, and the effect is being felt across global markets, with slides in major stock indexes worldwide grabbing most of the headlines. For gold, this has served as confirmation of the risk-off play for gold coming to the fore. With each unanticipated escalation, we’ve seen a new pack of investors and traders de-risking by shifting into gold positions. The most recent exchange of violence, on Thursday night, was the tailwind that pushed gold briefly above $2400/oz for the first time. We know from tragic experience (see previous: Russian invasion of Ukraine, the outbreak of violence in Gaza) that markets will not bear the same sensitivity to these headlines forever. While the best outcome, from a human perspective, would be for these conflicts to actually cool, the last 36 months have shown us that if they don’t, they will simply be “priced in” over time. For now, though, the potential for an exogenous shock spiking the gold chart next time a bomb detonates or a drone launches needs to be accounted for in any positioning around the gold market.

The other two factors really influencing gold markets (largely through the pressure exerted on key correlated assets like the US Dollar) are old hat for us at this point and, as such, have become the recurring questions we check in with for each trading day: What does the key macroeconomic data say about the path of inflation and the health of the US economy? What does the Federal Reserve need to see from that data before they make the decision to cut interest rates?

Public commentary from Fed Chair Jerome Powell was the highlight of this storyline this week, as Powell escalated the notion that he and other key FOMC officials have been alluding to for several weeks: that inflation has reached a point of stubbornness and, in light of still-strong economic data, the FOMC is in no hurry to cut rates for the sake of doing so. Put differently: an interest rate cut in June—when we came into the year with reasonable expectations that it might happen in March—may be all but off the table already.

While we can’t look ahead to next week and plot out any kind of schedule for developments in the geopolitical space, we do have a macroeconomic calendar from which we can work. Here, we see two points of interest in the week ahead: Thursday’s first pass at reporting a GDP growth rate for the US economy in Q1 and Friday’s PCE Price Index coverage of inflation.

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 next week for another market recap.