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 the future.
Gold prices are ending the week somewhat off the pace, but the chart still indicates strong support at levels that suggest gold's rally may resume later in Q1.
So, what kind of week has it been?
Gold price enjoyed a slow but relatively constant trendline higher through much of the week, but spot prices ultimately broke a streak on Thursday and made the week's steepest shift a fall under mounting pressure from FOMC participants' rhetoric. Investors were also left with a relatively quiet week in terms of headline flow and key data points, and the tendency to reassess one's projections and positions likely also contributed to the shift in sentiment that cut the yellow metal lower.
For the first few days of the week, the commentary from FOMC officials-- including an interview with Chair Jerome Powell-- carried on the work of expressing to the market (trying to, at least) that the Fed maintains a somewhat hawkish view of both the continued tightening in the US economy that is needed to truly cool inflation (though Powell & co are acknowledging that "disinflation" has started,) and the leeway the central bank has to do so without fully tipping the US into a hard recession. Gold prices, Monday through Wednesday, weren't negatively affected by this rhetoric as we would have expected. Spot for the yellow metal, in fact, shifted higher to continue a mini-streak that would run to four consecutive sessions and a high point of $1880/oz. The tailwind that kept gold aloft appears to have been generated by a weakening US Dollar throughout the week; without steady pressure from a rising Dollar, the gold spot maintained steadier momentum in a quiet marketplace.
While most of these appearances and comments from FOMC officials failed to dent price support for gold, the accumulation (and the apparent shift in investor sentiment) built up to a tipping point, and on Thursday morning, the bough of gold's support snapped, and precious metals' pricing fell sharply; gold spot fell roughly $20/oz before slowing near $1860, a level that has provided mostly reliable support since. Somewhat curiously, the Dollar still hasn't really surged in the other direction. While the Greenback has continued to be less responsive than expected, it was benchmark yields on the US Treasury's 10-year note that climbed higher on Thursday and built a steady headwind against gold's rally.
That gold's support hasn't deteriorated further going into the weekend-- prices briefly dipped near to $1850 Thursday night but have steadied through Friday and regained $1865 despite another tick higher in Treasury yields-- may be a promising sign for gold's strength in the back-half of February. This week, we've seen the market drift back into a stance of expecting that the Fed can and will continue to hold--if not raise-- rates through most or all of 2023; and we've seen how investors position around that expectation (for gold, a negative shift.) Next week, then, a great deal of focus will be on the refreshed report on consumer inflation, due on Tuesday. If it's a continuation of the moderate easing of price pressures that have been tallied in recent months, we may see a beefed-up replay of Thursday's weakening of the gold chart as this would be seen as corroborating the expectations being set by the Fed. An unexpected spike in inflation would probably be gold's worst potential outcome, as it would imply the Fed will not only continue to hike but may resume 50- or even 75-bps increments. How much of a drop in the CPI beyond consensus would spur a potential rally for gold? That will (maybe) remain to be seen next week.
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.