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 Friday morning’s consumer inflation data to solid gains on the day, allowing the yellow metal to close the week mostly even with the spot prices that opened trading on Sunday night. A week of growing risk appetite in global markets had kept gold at a disadvantage for most of the week, but investor and trader reaction to Friday’s CPI headlines have given prices a safe-haven tailwind.
So, what kind of week has it been?
This week’s market activity was relatively constrained, as we broadly expected it to be in a week that looked to be light on market-moving headlines (owed to a silent period for Fed officials ahead of next week’s FOMC, and last week’s stop-gap extension of funding for the federal government,) and a data calendar heavily weighted towards Friday. The numbers released on Friday morning—the updated CPI read on US price inflation in November—have been the biggest mover for gold prices.
Friday morning saw gold prices moving steadily higher following the CPI data, which printed neatly in-line with expectations for the year-over-year calculations: core inflation rose 4.9% over the 12 months ending with November, while over-all inflation climbed 6.8%. By mid-day on Friday, gold spot prices have climbed to find stability around $1785/oz; Hardly a breakout session for the yellow metal, but it does present an opportunity for consolidation near the highest levels that spot price has achieved in December.
The coverage that November’s CPI data has gotten may seem incongruous with a relatively mild jump in the price of gold, which remains one of the traditional safe havens plays against inflation fears: The financial news headlines are correct to point out that overall inflation at 6.8% is the highest mark in nearly 40 years, but that eye-watering number was still aligned with consensus projection going in to this week, meaning that it was generally accounted for in market prices. More importantly, it’s not being seen as an acceleration that will increase pressure on the Fed to shift more aggressively hawkish (as least, not relative to FOMC leaders' comments in recent weeks.) We are seeing evidence of this on Friday, not only in the reasonably gentle rally in gold prices, but also as US equity markets are headed towards (at least) marginal gains on the day and the US Dollar Index has weakened a bit. (Were the market processing Friday’s inflation data as a new point of reckoning for the Fed, we would expect to see those asset classes not only move in the opposite direction, but aggressively so.) Different looks at the CPI support this as well. The monthly increases in price inflation in November happened slowly than in the month prior; although the month-over-month rise in headline inflation was marginally faster than expected. These numbers may not be a strong argument for higher inflation abating already, but they also don’t point to inflation pressures worsening between October and November.
As we bring a mostly calm week for gold prices to a close, next week has a greater potential for volatility in the yellow metal—in any of the major commodities and G5 currencies, in fact—as we’ll talk about in more detail on Monday. Wednesday’s final FOMC meeting of 2021 will present the Fed with their first opportunity to proactively accelerate their taper process (and, in doing so, presumably bring forward the date of their first rate hike in 2022) in an effort to cool the price inflation that is making the headlined on Friday morning. It will also deliver updated projection from the Fed on inflation and labor market stability through the medium term.
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.