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 another week on the skid, weighed down as they have been by inflation data and the implications for upcoming FOMC decisions.
So, what kind of week has it been?
The driving forces behind this week’s gold price decline— one that not only is pushing the yellow metal into the definition of a week-to-week losing streak but also its lowest bids in a month— is pretty clear and allows for an obvious culprit: Thursday’s release of consumer inflation data for the US economy in the month of July.
That’s certainly not to suggest that the CPI report was terribly surprising to the market. From the start of Sunday evening into the Monday morning New York opens, gold spot prices slid steadily (if not energetically) all week as traders and managers formulated their expectations not only for the Bureau of Labor Statistics dry data set but its implications for Fed policy in the near term. A generally unchanged read on consumer pricing pressures would hurt the valuation outlook for gold (and other commodities) in two ways: a lack of sharp deceleration in inflation would argue for the FOMC to maintain its hawkish stance of continuing to hike rates through the end of 2023 (at least)— the read being that the Fed’s plan of action is working, but the work is not yet “done”; and no indication of inflation pressures reversing course and re-intensifying would deny gold any upside to participating in as inflation-protection. With this outcome broadly expected, traders spent the majority of this week lightening any existing gold positions and selling the spot market to a pre-CPI low of around $1915/oz. Most of the bets being made were on stronger US Dollar and climbing US Treasury yields.
And the data delivered the consensus call on Thursday, even if it wasn’t directly aligned with expectations. In reality, while the month-to-month CPI data was on-target, both headline CPI and the less-volatile “Core CPI” numbers came in slightly below expectations (although it’s worth noting that headline inflation rose, on an annualized basis, in July for the first time in nearly 12 months.) As expected, the US Dollar rose higher alongside strengthening bond yields, and gold prices endured an acute burst of selling that pushed the precious metal to its weekly nadir just above $1910/oz. That gold didn’t fall more sharply on Thursday morning is evidence of how well the market had priced in the July inflation read earlier in the week. What did surprise us somewhat was how much of the US equities market latched onto a faint hope that marginally lower-than-expected CPI numbers would convince the FOMC to pause from hiking rates at the Jackson Hole Symposium. While this argument is unconvincing, to say the least, the major US stock indexes did manage to turn green for a time in Thursday’s trading (although, as of Friday morning, stock still looks set for a consecutive week of losses.)
Things briefly looked more dire for gold than they’ve turned out to be, at least to date. In Friday’s trading, the yellow metal’s chart has at least firmed up a bit and consolidated. Initially, gold climbed back as high as $1920/oz, but another relay of inflation data (covering producer costs, this time) has taken the wind out of the sales once again. Still, if we are looking for any kind of positive for gold at the end of the week, we might find it in the apparently solid support at $1910/oz.
Next week’s potential path is a question mark, as we will be fully embedded in the doldrums of mid-August, with no major data due (save for some possible investor interest in the FOMC minutes to be released on Wednesday) and very meek expectations for any sort of market-moving headlines with even most of the US on some form of holiday.
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 wrap-up.