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 prices are wrapping up the week at a considerable discount to Sunday night’s opening bids, as the yellow metal has come under heavy pressure from a slump that is affecting the commodities complex overall, and a return to dominance for the US Dollar.

Despite the week’s losses, gold has held lines of support through some rough trading, and may have the opportunity to rebuild from consolidated levels.

So, what kind of week has it been?

Another late-summer week in the markets, another stretch of trading sessions that have been lightly attended as the investors and traders that are the life-blood of an active gold market—even (we would wager) most corporate hedging operators—get their summer holidays in and we’re left with not a whole lot to discuss. And while we are looking at one more week like this just ahead, at least, this time around we again had a midweek data drop for the market to react to. Plus, we always can count on the FOMC to not let us go even through a dull, dreary week without talking about them.

It looked, briefly, at the start of the week, like we might be in for a little more volatility and strife in financial markets from a source to which the gold market is, historically, very reactive. China’s central bank, the PBOC, announced a surprise round of interest rate cuts in a move that signaled the head bankers of the world’s second-largest economy are genuinely concerned about the economic toll that recent lockdowns and a major real estate crisis have taken on China, and the damage that might be done in the near- to medium-term. Global equities jittered and shook a bit through the Sunday/Monday overnight thanks to the news, and the US Dollar showed some signs of life with the Dollar Index climbing higher. From the open of cash market trading on Monday, however, the US bourses didn’t look like missing a beat: while none of the three key US stock indexes made real moves on the day, they all would close clearly in the green, building on a month of positive momentum. The healthy run for equities then continued through Tuesday.

Although the negative news out of China on Sunday night had done little to unsettle equity markets, particularly in the US, China’s position as the number one consumer (read: purchaser) of many of the world’s key commodities, and a key producer of others, means that raw materials have felt a more enduring impact. The crude oil market slid sharply on Monday, and gold prices, which had built some strong gains towards $1800/oz in recent weeks, softened as well; the yellow metal is particularly sensitive to negative economic news out of China, and had fallen back below$1780/oz by the time New York logged on to start the week. The worrying headlines from Beijing have quieted since Monday, but the downward pressure on the commodities basket, in general, has persisted and these initial slides in the oil and metals markets have come to dominate the rest of the instruments’ trading sessions this week. 

Gold’s spot prices showed resilience early this week, nonetheless, demonstrating the strength that had been consolidated in recent weeks. The lack of any real catalyst in Tuesday’s trading could’ve left the yellow metal to continue sinking when instead spot prices held firm around $1775. 

The news out of China was not the only headwind pushing against gold earlier this week, though; rather, it helped catalyze the return of another antagonizing input for gold: a running and rallying US Dollar. That signs of instability in Asia should spur a USD rally is no surprise, but gold did indeed show strong support. Somewhat unexpectedly, however, the Greenback’s climb was accelerated by super-hot inflation numbers out of the UK which powered the Dollar higher in relation to a sinking Pound. After holding a steady line, gold prices retreated to $1760 as the Dollar Index climbed back to 107.

Weak Retail Sales Sent Everything but USD Lower

Wednesday was again the only real active session of the tedious August trading week we’ve endured. Retail Sales growth, for the month just ended, came in below expectations in the all-inclusive number; in fact, sales growth was reported flat at 0.0% month-over-month. That the ex-auto sales numbers were better than expected should strike a positive chord for investors, deep looks at the whole report reveal some concerning signals, like the fact that what increase in consumer spending was recorded seems driven by higher prices rather than a higher volume of transactions.

Spoiler alert: The retail sales report likely looks much less benign beneath the surface

Volumes bought are dropping pic.twitter.com/oGIjAeciWj

— AndreasStenoLarsen (@AndreasSteno) August 17, 2022

This kind of thinking kicked off the first—maybe the only— down-day for US stocks (overall) this week while gold continued to slide under pressure from the USD. Had there been no other news items on the calendar it could have turned into a no-good, very bad day for both asset classes.

The Fed Minutes Set the Table for September

Of course, this wasn’t the case. Wednesday afternoon brought the release of the FOMC’s discussion minutes from the committee’s July meeting, which preceded another +0.75% basis point hike to the overnight interest rate, as part of the ongoing battle against inflation. The minutes’ release largely affirmed what Jerome Powell & Co. communicated to investors last month; most importantly: 

- The FOMC is still as the will and—in their view—the leeway to persist with their work to tighten financial conditions in the bid to lower inflation, but will be ready to ease of the breaks once they feel inflation is finally cooling. (How big of a step in that direction last week’s improved CPI numbers represent, is unclear.)  

- The committee is going to eschew the “forward guidance” it has leaned on for 18 months, in favor of walking a data-depended path.

This second point, following Wednesday’s minutes, led investors to believe that the current phase of interest rate hikes might be coming to an end (somewhat) earlier than was expected at the start of this fiscal quarter. At the very least, the expectations for how steep the rate path will remain have eased, with instruments based on the Fed Funds futures now “predicting” a hike of just +0.50% in September. 

The suggestion that the regime of rising rates might be closer to sunset gave a boost to the gold market and saw spot prices trading as high as $1770/oz, but the yellow metal’s rally was short-lived with the market under the gravity of the Dollar run and the commodities complex slump initiated by the slowdown in China.

Next Up

Of concern for gold’s immediate future is the fact that, just as we saw and/or slept through last week, the relative flurry of market activity on Wednesday was been followed up by a dullard of a Thursday session for most market participants and, in this vacuum, gold continued to weaken because the Dollar, mostly unopposed, continued to climb. (Gold spot slid back to $1760/oz.) And Friday doesn’t look to offer much of interest either.

Following the release of Wednesday’s FOMC minutes, comments and commentary from Fed officials next week will likely be as meaningful as it has been all year, and the focus on it (by those who aren’t on the beach) will be amplified by the lack of any other meaningful (scheduled) data or events on the calendar. For now, while we would have to call it a positive sign if the yellow metal can resist the heavy downward pressure through Friday’s trading and at least remain above $1750, any opportunity for gold to rally in the near-term next week will be driven or doused by FedSpeak.

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.