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.
As we close out the final whole trading week of 2023, gold prices have put in another week of aggressive gains on the firming market expectations for 2024 to be a year of easing interest rates that will act, for a time, as a boon to investment in the precious metal.
So, what kind of week has it been?
Given the season, we could try to suggest that it’s just the generosity of the holiday spirit that has driven gold prices to new highs. In reality, of course, we know that the cause is jolly old investor exuberance around expectations for the Federal Reserve to transition to cutting interest rates in the new year—perhaps as soon as March.
This week’s trading began with the yellow metal’s spot price rolling mostly flat along support around the $2025/oz level. While the expectation was set for the market to trend this way for most of the week ahead of another round of inflation data (via the PCE Price Index) on Friday, Christmas appeared to come early for some of those holding long-gold positions. Around Tuesday morning’s open, possibly in an effort by investors and traders to take positions before signing off early in the week, gold drove quickly higher on positioning and sentiment rather than hard data or news, reaching a top above $2045 before moderating and settling slightly lower in the afternoon.
In a relatively sparse week for economic data, we did have eyes on the Philadelphia Fed’s Manufacturing Index on Thursday, as recent softening in the US industrial sector has been another factor in the push for the FOMC to call an end to its series of rate hikes. Following that form, with the Philly Fed number coming in well below expectations (-10.5 on the survey index vs. -3.0,) we did see another lift in gold prices. This tailwind was likely composed of a combination of a lift from expectations for a lower interest rate environment sooner to come and gold’s traditional role as a safety play in the face of economic instability. However, the yellow metal’s climb on Thursday morning (which amounted to a gain of roughly $10/oz and a return to $2040+) was muted by the gains already made in Tuesday’s rally.
These unexpected uplifts in gold spot put the yellow metal in a strong position ahead of Friday’s main event, the November update of the PCE Price Index, “the FOMC’s preferred measure” for inflation in the US economy. Because the primary inputs to the PCE number—the same period’s CPI and PPI numbers key among them—had been reported in the preceding week, as usual, we were not expecting much in the way of surprise. Here, again, though, we got another upside boost as even the annualized headline and “core” PCE prints reflected cooler inflation data than expected, a disinflationary signal amplified by the fact that the prior month’s readings were also revised lower. As has become commonplace in this cycle of the Fed vs. inflation, the lower inflation data that would historically have been a sell-sign for gold prices has boosted the precious metal higher still. The top tick (by all appearances) for Friday and the trading week came in at $2070 post-PCE, a somewhat over-sized spike that has moderated through the final trading hours of the week to see gold resting and consolidating gains just below $2060/oz as investors and money managers now seem to be fully committed to projections of interest rates coming down in the first quarter of the (rapidly approaching) new year.
On the other side of Monday’s Christmas holiday, we move into an always odd turn of the year for trading, as the next three weeks—two of which will be truncated by market holidays—will feature considerably lighter volume and more limit-/stop-order trading, which tends to play out as very flat relative to the rest of the year, with the persistent risk of any sharp falls or rallied being exacerbated by fewer actors being present to moderate the swings. From this week’s perspective, though, gold appears to be closing out 2023 on a clear, high note.
For now, traders, I hope you all have a safe and lovely weekend to celebrate anything from the Christmas holiday to an extra day off. We’ll see you all back here next week for the last market wrap of 2023.