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.
Despite a challenging start to the week and pressure from the US Dollar returning to recent highs, gold prices on Friday morning are trading at a premium to last week’s close.
So, what kind of week has it been?
While financial markets as a whole, and the US stock market, in particular, have gone through a week so dull that it has felt very much like some sort of cosmic comeuppance for uttering that any other part of August 2022 was “probably the slowest markets will get this summer,” the gold market has enjoyed more velocity and momentum since Sunday evening. Most impressively for the yellow metal, the motion hasn’t been entirely downward but is set to close the well into the green, despite the US Dollar returning to eye-watering heights over the same period.
Before equity traders and investors parked their positions for the week ahead of Friday’s Jackson Hole goings on, stocks did have an active start to the week, in that it was an actively painful day for most equity investors. Before the cash markets ever opened on Monday, there were already clear signals that the environment would be rough for stocks. US Treasury yields had moved steadily higher from the global market re-open on Sunday evening, and the gold market gave back the last of some hard-won ground over the same stretch. From Friday’s closing prices near $1750/oz, gold spot fell to $1730 just ahead of the Monday market open. The main driver for both of these moves, as well as a major headwind for US stocks, was a return to dominance by the US Dollar, which has been headlined by a return to 108 for the Dollar Index, a 40-year high, among other demonstrations of strength.
U.S. dollar is having its best year thus far since 1997 pic.twitter.com/M4mV1j2gek
— Liz Ann Sonders (@LizAnnSonders) August 22, 2022
Likewise, the Dollar’s re-resurgence—which has remained strong throughout the week so far, even when slowing down—has its motivating factor: Last week closed with what appeared to be a shift in investor expectations, towards a milder path of a rate hike through the remainder of 2022 and starting as soon as next month, the marketplace whipsawed (as it is want to do) back towards expectations for still-aggressive FOMC action in the months ahead. This, as it has for months, flowed through to much stronger bids for the Dollar (as the most direct play to profit from higher rates in the US economy,) which has driven prices for gold and US Treasuries lower and countered the summer rally in US stocks.
For that reason, Monday’s action had more than a few battening down the hatches and boarding up the doors for a rough and volatile week in the markets that would see gold prices spiral lower towards $1700 alongside falling stock markets, all ahead of Friday’s Jackson Hole speech from Fed Chair Powell. Instead, from Tuesday, the gold market moved confidently in the opposite direction.
A headline splash made by a disappointing drop of economic activity data for the US (as well as the UK and Europe) put a pause on the Dollar rally (without pushing the Greenback lower, of course,) on Tuesday morning, allowing gold to rally sharply from the lows of Monday: by lunchtime in New York, gold spot had jumped back to $1750/oz. Prices moderated slightly after the big pop, but through Tuesday night (and a very slow Wednesday market for all major asset classes) remained just below the initial high tick, and since then the yellow metal has, for the most part, been in the green for the rest of the week. The peak of the week for gold, so far, came in the early hours of Thursday morning. Euro markets, and the Euro currency itself, put in a solid recovery rally (clawing back the steep losses taken on the continent at the start of the week following some destabilizing shifts in the energy market,) enough to take a little more wind out of the Dollar’s sales, allowing gold to climb as high as $1765 during the morning in London.
On Thursday in the US, gold was unable to hold on to these gains after a better-than-expected update to Q2 GDP number for the US economy kicked off a risk-on rally that saw investors shifting away from most safe havens (like gold) in favor of new bets in the stock market. With Friday’s address from Chairman Powell still looming though, it was another mostly mutable rally, lacking the exuberance of earlier in the summer. While the increase in risk appetite saw gold knocked from its highest perch of the week, prices didn’t fall far and through Thursday’s session trading until early Friday morning spot prices remain tight to $1755/oz.
Large contingents of investors this week have been mostly sitting on their hands ahead of Jerome Powell’s address from Wyoming on Friday. The cruel reality there—well, much more “boring” than “cruel”—is that Powell’s speech seems unlikely to add a great deal to the conversation around what the FOMC’s move will be in September (whether it will be another hike of +0.75%, or a smaller jump.) For one thing, there is little indication that the Fed is in a position to need to take the step of communicating its immediate plans outside of a scheduled FOMC meeting and press conference. More importantly, the central bank made a very clear point at the last meeting to say that they plan to move away from such direct forward guidance to be more “data dependent.”
Even if there likely won’t be any sustained market impact from Powell’s Friday address, acute volatility is sure to be there—at least around the pre-event release of the Chairman’s speech. Otherwise, Friday may be a mostly dull end to the week. Those who have been waiting on a little more action can look forward to next week, when the data calendar fills out a bit, culminating with the August Jobs Report, and headline flow is expected to be more interesting as we move into September.
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.