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 prices have given up what looked to be meaningful gains earlier this week, but still maintain consolidated support going into the weekend, even in the face of an outstandingly strong US Jobs Report that has reinvigorated the US Dollar.
So, what kind of week has it been?
Gold has been “consistently inconsistent” in terms of its directional shifts, volatility, and trend-lines for most of this summer; over the last week of trading, the yellow metal’s movements and motivations felt more rational by comparison. In short, the gold market reacted to the headlines and data points of the week as we would have typically expected from a key safe-haven commodity. Although this ultimately stripped gold of its possibly platform-jumping gains this week, it might ultimately be a reassuring sign for precious metals traders that gold’s movements and patterns will be more predictable than they have been for much of 2022.
The week’s first sessions were a boon for gold. A mix of unease in the market’s mood and a hesitance to commit to last week’s feel-good outlook that helped propel equities and other risk assets higher had investors and managers showing a reduced appetite for risk, and US stocks endured a common “summer selloff” on Monday and Tuesday. At the same time, the thermostat of geopolitical risk was felt to be creeping steadily higher early this week thanks to tension around a high-level US visit to Taiwan (seen as obviously antagonizing to China, intentionally or otherwise,) and the most high-profile military action from the US in some time.
These inputs that encouraged more interest in safe-haven positions Monday and Tuesday, importantly for gold’s path this week, also applied more of a headwind to the US Dollar. With the Greenback less able to draw the attention of investors reaching for safety, gold spot prices built on an already strong start to the week and rose as high as $1786 by Tuesday morning.
On Tuesday afternoon, and then on Wednesday, especially, we saw the second turn of gold’s week spent behaving “as normal,” when the geopolitical pressures present at the start began to unwind a bit. Speaker Pelosi’s visit to Taiwan turned out to be as benign (or, at least, immediately harmless) as could be expected, cooling any idea that a new point of acute geopolitical might arise from the US’ diplomatic trip to China’s doorstep. With this easing of tension, the US Dollar rallied a bit as the risk-off trade was unwound with gold and US Treasuries falling on the day. In one of the positive notes for gold this week, support in the spot market appeared stout in the range of $1760/oz. After visiting slightly below that level on Wednesday morning, the yellow metal has not looked back.
Everyone knows everyone is bearish so that’s bullish but everyone knows that so that’s bearish but everyone knows that so it’s bullish. Simple.
— Dan McMurtrie (@SuperMugatu) August 3, 2022
One thing we’ve seen to be true this year is that sudden turns of general optimism from investors, when not backed by concrete data or action, are not long-lived. This one didn’t make it very far into the next day. By Thursday, attention was turning to the upcoming July Jobs Report, and concerns over whether it would indicate that the Fed’s super aggressive tightening of monetary conditions to fight decades-high inflation was finally taking too high a price on US economic activity, to the detriment of the labor market. The fears were not unreasonable, not only because of other sparse data points as of late but also in light of the weekly read on Initial Jobless Claims continuing to creep higher since the spring. With investors back in a crouched, consolidated risk-off position, the midweek optimism (in a dance step we’re now familiar with) reversed course: US Dollar down; sovereign bond yields higher; most importantly, gold price much higher, and with feeling. At the top of this arc, coming late Thursday night spot prices tipped to $1795/oz while the futures market crossed beyond $1800 for a time.
By now, on Friday, we know that although investors’ worries were not unreasonable, they were unproductive. July’s Jobs Report has blown the doors off of the consensus expectation, led to an NFP number of 528K where something well under 300K was projected. Investors have swung aggressively back into the Dollar since Friday morning’s print—amplified by an unexpected drop in the overall unemployment rate and a meaningful beat in Average Hourly Earnings across the US labor market as well—propelled by the assumption that this kind of result will keep the Fed’s afterburners at full-thrust through the summer and early fall.
As the Dollar has kicked back into the ascendancy, US stocks are struggling, and—again, as we would expect from the yellow metal’s historical tendencies—gold prices have retreated back to the $1775/oz line of support going into the weekend.
Gold could likely have a less energetic week, compared to the last two, to consolidate the gains that it managed to retain this week. The sessions ahead aren’t empty of potential impact, with the next CPI report due on Wednesday. But the days on either side look fairly quiet and so we’ll see whether it’s gold or the Dollar that solidifies the progress of the week we’re wrapping up here.
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 on Monday for our preview of the week ahead.