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 have stumbled, tumbled, and fallen this week as key macroeconomic data appear to have weakened investors' recent certainty that the era of the Federal Reserve's aggressive rate hikes has come to an end.
So, what kind of week has it been?
It has been the case, repeatedly, that when an aggressive gold rally appears to be driven almost entirely by investors' projections and assumptions about the Fed's next monetary policy move, when data forces sentiment to shift and the bill comes due, the yellow metal's spot price comes crashing down to earth. This week has been no different.
The soaring gold rates of the last month's trading were an obvious expression of two beliefs held by the market: that the pressure cooker of post-pandemic inflation has cooled enough to encourage the FOMC to cease their strategy of tightening interest rates to slow the US economy, and that (much later than some predicted) the foundations of the same US economy are starting to show some cracks, implying that the FOMC must end the hiking cycle (beyond the current "pause.”) How tightly the first position is still held by investors remains unclear—recent inflation data certainly supports it. But the data delivered this week makes it hard to argue that the economic stability of the world's top economy is in anything resembling "bad shape."
If we're being honest, though, the market appeared to be changing its mind even before the numbers were delivered. After one last peak in the first trading hours of Sunday night, gold prices fell under the persistent pressure of a combination of gold-longs taking profit after spot prices reached new record highs and other investors taking their positions off in anticipation of this week's data-altering projections for rate cuts coming sooner than later. By Monday's close, the yellow metal had sunk new highs above $2080/oz to still-healthy support around $2025.
For most of the trading week that has followed, gold rolled along this $2025 table, failing to find any boost for a quick rebound but also enjoying solid support to prevent it from drifting anything lower. From the start of the week, we suggested that Tuesday's ISM Service-Sector Index might offer a tailwind to gold if the key number continued to flag as it had the month before and suggest further instability in a vital portion of the US economy. Tuesday came and went with no such luck for the yellow metal, however, as the Services PMI instead printed a moderately stronger number than anticipated.
Gold continued its flat-track roll through Wednesday and Thursday, trading a relatively narrow band of pricing. We would have said that gold looked vulnerable carrying this trading pattern into a key macroeconomic data point and, sure enough, with the delivery of the November Jobs Report on Friday morning, spot prices have rolled completely off the table and crashed against the floor.
Per the US Labor Department, the number of new jobs added to the US economy in November fell just shy of +200K, a moderate but meaningful overperformance against the consensus expectation of +180K. Surprisingly (though admittedly less impactfully) the overall unemployment rate also fell last month, from 3.9% to 3.7%. In response, financial markets have spent Friday dramatically re-pricing their bets that the Fed is done hiking. Gold broke steeply lower, as we said; spot price actually briefly below $2000—a loss of more than $25/oz—before recovering support at the key psychological level. Elsewhere, Treasury yields and the US Dollar strengthened rapidly following the release, no doubt accelerating gold's drop. US stocks have also struggled today and look primed to turn in the first losing week in five tries, further suggesting that this move is all about the decreasing certainty that we won't see any more rate hikes from the Fed in 2024.
Despite the objectively brutal week that gold has turned in, it does look like a real positive for the precious metal to have (so far) maintained support above $2000/oz, a level that presented as an impenetrable barrier to the price chart for so many years. Assuming the bottom holds over the weekend (there's always a possibility that this Sunday's global market open will re-introduce some of this selling pressure in Asian markets,) Tuesday's updated Consumer Inflation data to come will likely be the pivot point that determines the rise or fall of gold through the end 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 next week for another market recap.