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.
Even given a consistent slide lower in the final trading hours of this week, gold prices have returned to the neighborhood of recent all-time highs on Friday, as a dovish turnout from the Federal Reserve this week has driven investors and traders back into the yellow metal.
So, what kind of week has it been?
This positioning—or, rather, lack of new positioning activity—even carried through the release of new consumer inflation data on Tuesday morning. November’s CPI report delivered numbers that are bang in line with expectations (apart from a +0.1% increase in overall inflation month-over-month vs. projections that it would remain flat). This as-expected performance likely accounts for the muted reaction across multiple asset classes, with investors having already priced in the results. Specific to gold, the chart corrected slightly lower after prices had climbed closer to $1990 pre-CPI. Again, support for the precious metal’s spot price valuation remained sturdy, and in the trading hours between Tuesday’s market open and Wednesday’s FOMC announcements gold never looked susceptible to a further fall.
The five-day gold chart is very cleanly bisected by Wednesday’s FOMC. Following a modest easing in spot prices (much more moderate than the opening drop last Monday) after global markets opened on Sunday evening, trading in gold matched the dull tone of most of the previous week as the yellow metal rolled steadily along a table at $1980/oz. As investors and traders appeared to be sitting on their hands in advance of the last Fed Day of 2023, gold found no tailwinds or market changes to offer a lift to prices but demonstrated at the same time that there was little appetite for selling gold.
In contrast to the positive but unexciting Consumer Price Index data, the Fed offered markets considerably more to be surprised by. Pleasantly surprised, it seems. Realistically, a change to the Fed’s overnight interest rates was never on the table this time around (certainly not a rate cut.) What was mostly unexpected, though, was the thoroughly dovish tone that was stuck across the board in the committee’s agreed-upon statement, in the updated economic projections, and in Chair Jerome Powell’s post-meeting press conference.
In the data, the average (anonymous) economic projections from the US central bankers adjusted their estimates for future levels of inflation—and the end of 2024, 2025, and 2026 individually. For (at least) the next three months, the FOMC will plan their monetary policy moves around expectations for inflation to continue easing through 2024 and falling to just above the “symmetrical” target of +2% by the end of 2025. To align with this, the median dot plot (used to anticipate changes to the policy rate over the same three-year period) now indicates three separate cuts in 2024.
In the language, the committee, of course, maintained their “flexibility” to return to raising rates further or hold them higher for longer than planned if economic conditions warrant as much. Short of removing that option, however, Powell & Company otherwise made plain that the hiking part of this cycle has come to a close.
The market reaction played out as we would have expected, then. A sinking US dollar, climbing prices for US treasuries, and an exciting rally in US stocks set the backdrop for a ripping surge in gold prices. The yellow metal ignored the historical potential to slide lower on expectations for weaker inflation and instead grasped tightly to the rocket ship of exuberant expectations for a lower rate environment just over the horizon of the new year. In what seemed like the narrow space of a heartbeat, gold spot price soared to and through the once tough resistance at $2000/oz with ease before starting to flatten out just above $2035, the level at which it held through the afternoon hours and Thursday’s trading, as well as Asian and European markets’ Friday session.
Unsurprisingly, in the US trading session on Friday, we’re seeing some moderation to gold’s post-FOMC bull run as some traders are taking profit on long positions that now offer a healthy return. Where this adjustment settles by the end of the day will set an important level for gold through the final moves of the year, given that next week kicks off what we expect to be 2-3 weeks of noticeably thinner market depth around the Christmas and New Year holidays.
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.