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 may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.
Gold prices have ridden the reverb of a pivotal FOMC meeting this week, and in the final full trading week of the year, the yellow metal will close with considerable gain beyond Sunday evening’s opening bids, and a promising platform to settle on during the holiday run.
So, what kind of week has it been?
Ultimately, gold’s trajectory this week would be ruled by reactions to the FOMC’s announcements and investor reactions to/projections for inflation; but on Tuesday, it was still being largely influenced by the US Dollar’s bull run. Gold prices fells steeply on Tuesday morning, under pressure from a climbing US Dollar Index, and gold continued to fall even through the release of producer price inflation data that came in (+9.6% YoY) at an “all-time” high. While the coverage of the PPI release seemed to spook investors into a more risk-off mood ahead of the Fed, sinking equity markets into the red, gold found little-to-no meaningful support as an inflation hedge and tumbled to $1770/oz.
The immediate future didn’t’ look much brighter for gold on Wednesday morning. The trading hours before a pivotal FOMC announcement tends to be nervously inert for many assets, including precious metals, as investors sit on their hands before the afternoon rush. This time, the pre-Fed jitters were ugly for the yellow metal as market participants seemed eager to drop positions, perhaps in anticipation of a harsher market reaction—or a more irrepressible surge in the Dollar—to the expected hawkish turn from Jerome Powell and the Fed. Gold spot price slid to the lows, near and below $1760, before Powell took to the podium.
In reality, the FOMC as a body managed to deliver a slightly more hawkish Fed Day than the market was generally expecting: Not only did Chairman Powell announce that the central bank will double-time the original pace of tapering (now targeting March 2022 for completion,) but the committee’s joint statement dropped its reference to keeping monetary policy accommodative to keep inflation around 2% “over time” (per the Fed’s revised policy framework from Jackson Hole 2020,) and the majority of participants in the Fed’s updated economic projections now see a full three (3) interest rate hikes in 2022. The “consensus dot” in September’s projections marked no hikes before 2023.
So, a little more hawkish, but still generally aligned with expectations. The initial FOMC release didn’t do a great deal to move gold prices up or down, but Jerome Powell’s Q&A that followed provided the first steps for gold’s rally towards a gain on the week.
A key takeaway from Powell’s comments, and what allowed gold some headroom and a tailwind to move higher despite the announcement of a faster Fed taper, was the Chair’s efforts to put some separation between the Fed closing out its asset purchase program and the first rate hike, in investors’ minds. The central bank has made a few efforts at getting this point across since first confirming plans to start the taper this fall; but this seems to be the first time that Powell’s remarks got through to the market. One could argue it “worked” this time because Powell talked more specifically about what would signal the time for raising rates: achievement of the Fed’s “full employment” objectives.
There is still a lot of theoretical nuances to how the Fed would handle a liminal space between ending the taper and starting to tighten business conditions by raising rates—it’s also less than certain that they’ll even wait that long—but equity markets clearly enjoyed the idea that they’ll enjoy cheap money for a bit longer, and all three major indexes turned course and eventually closed Wednesday’s session with gains of 1% and above. As the Dollar came off the top a bit during Powell’s Q&A, gold found some lift and a launch as well: spot prices climbed quickly towards $1780/oz and never looked back.
These trends carried through on Wednesday evening and into Thursday morning as overseas investors got their opportunity to trade the FOMC. Thursday’s session in the US was less positive for many risk assets—whether as a result of a Fed hangover or a resurgence in fears of the newer Covid variants restricting business over the winter—and equities slid. Gold prices may have been lent some extra support from the switch back to risk aversion, but had a steady day. The yellow metal pressed against resistance at $1800 through the day while consolidating gains.
With the Greenback continuing to slide and Treasury yields giving back most of their post-FOMC increases, gold spot prices broke through the important $1800/oz level on Thursday evening. Friday’s session has turned out to be another confidence-builder for gold, which again may have benefitted from a volatile, gloomy mood in equity markets with the Dow set to close the week with a losing session. While gold spot prices have struggled to find momentum above $1800, there looks to be reliable support building.
With the Christmas holiday observed at the end of next week, and New Year’s follow, next up will likely be a quiet run for gold and much of financial markets; although, holiday weeks always carry with them the outside risk of increased volatility due to decreased market depth. For now, gold prices appear to be setting a healthy baseline to end the year.
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.