Happy Friday, traders. Welcome to our weekly market wrap, where we 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 considerably below the peak of the week but have nonetheless made important gains and set up key levels of support this week.
So, what kind of week has it been?
All things considered, in a week that was almost entirely devoid of revelatory data, headlines, or even reporting that meaningfully moved the gold market, gold prices look to be closing out the last full five-day trading week of 2022 having avoided losing ground. The yellow metal appears to, in fact, have consolidated the position from which it entered the week, and all of this despite the risk on/off sentiment of the broader markets being mostly at the mercy of how the investor mob felt about the Fed and Q1 2023’s outlook on a given day.
Gold slid mostly sideways on Monday, never too far from the $1790/oz mark and the week’s opening bids just above it. This is despite a decent performance for the USD to begin the week and for Treasury yields as well, with the 10-year’s rising towards 3.6% again and perpetuating the December sell-off in equities for fear of a still-tightening Fed come January (or even February.)
Tuesday brought the only real surprise, the only thing that we might call a moment of note for financial markets when looking back on this week with more than a few days gone. The uproar came from Tokyo, where the Bank of Japan caught more or less everyone off-guard by announcing an adjustment to their “Yield Curve Control” policy, widening the bands. Effectively, this functioned as a surprise rate hike and a signal of greater-than-expected concern from the BoJ. Most of the tumult came during the Asian market sessions, during which there was no lack of pundits predicting that the sharp downturn in Japan and other nations’ equity markets that followed would lead to a contagion to further weaken US markets.
With this sudden shake of instability and uncertainty (notably coming in a week where market depth across the board has been atypically thin and so markets were prone to be “more reactive”) it was no surprise then to see gold prices rising sharply in the earliest hours of Tuesday morning for the few US traders manning the desks this week. Spot prices ripped through $1805/oz easily and, after some choppy trading at the opening of US markets, climbed to $1818/oz, where it set up camp. The “contagion” never made it to US shores—it didn’t get past the European sessions, really—so there was not a second (or third) spike in volatility to unseat gold from its perch.
The lack of a strong negative shock to the US stock market emboldened investors, and equities had a boom of a day on Wednesday. Very notably for the gold market, spot prices remained mostly flat—holding gains from Tuesday’s rally above $1815—through the day despite what was a clear risk-on swing. For this moment, it appears as if gold’s ceiling isn’t determined by investors’ risk appetite, in a traditional sense, as much as it remains at the mercy of the Federal Reserve’s planning and/or the market perception of the same.
And, so, it was Thursday—as we’ve seen to be the case often in 2022—that the vulnerability to market sentiment about the Fed became a detriment to gold instead of a boon. For reasons that we can really only speculate about, after a positive-trending Wednesday, the investor psyche seemed to regain its awareness of the Federal Reserve and its commitment to persist with rate hikes (of some degree) for a while longer. The reaction in risk markets was decidedly fearful and negative as all three major US stock indexes resumed the persistently downward trajectory that has driven to them through what looks likely to be the worst December for stocks in two decades. For gold, the return of focus to interest rates climbing and remaining “elevated” through the medium term, of course, dragged the yellow metal’s spot pricing back below the $1800/oz threshold on Thursday. Still, in a positive for gold (though not for many other asset classes), the destabilizing effect of the equity sell-off does appear to have provided a tailwind to gold as investors continued to reach of various safe-haven plays—not just USD. With the help, gold’s downturn slowed near $1790 and allowed the precious metal to set up a strong level of support that it continued to build off of on Friday.
What the tone of the marketplace and how it will play out in the gold market, will be an interesting thing to see once we return from the Christmas holiday. After markets are closed on Monday in observance, there will again be little in the way of both headline- or data flow or market depth. Whether or not gold can ride through the upcoming stretch, remaining stable and within touching distance of $1800 will be a key data point in projecting the metal’s path for the first quarter of 2023.
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 Tuesday for our preview of the we