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 endured a much more frenetic trading week than we might have anticipated, but once again, we look to close the week in a stable, if not greatly improved, position.
So, What Kind of a Week Has it Been?
Forgive the oversimplification, but following an inert start, it’s been a very up-and-down stretch for gold prices over the back half of this week. With investors and money managers largely sitting on their hands to start the week in anticipation of the first FOMC meeting of 2024, spot prices for the yellow metal continued the trend of consolidation around the $2030/oz level. Given that a real shock from the Federal Reserve seemed highly unlikely—for sure, there would be no announcement of a rate cut this early in the year—it also seemed possible from Tuesday’s vantage point that Fed Day could ultimately be a non-event for the gold market (and, to a lesser extent, the US Dollar and Treasury trading) if a signal towards cutting rates in the near-term was already priced-in. At least until the January Jobs Report, due Friday, gold might trade relatively even throughout the week.
Of course, any quick glance at the gold chart will remind us that the Fed always has the capacity for surprise. In short, the Federal Reserve, through the carefully selected wording of the FOMC’s statement but even more so in Chair Jerome Powell’s comments in his post-meeting Q&A with the press, struck a much more hawkish tone than most of us were anticipating. The headlines that have followed, which stake the claim that the FOMC has totally ruled out a rate cut in March, overstate things somewhat, but Powell certainly did dampen hopes for lower rates in Q1. This was accomplished by an effort to hammer home the view that the central bankers still feel a need to (through the assessment of macroeconomic data) have “greater confidence” that inflation in the US is on a fast enough downtrend to reach the symmetrical target of 2%. This is opposed to the position that more than a few in the marketplace had taken: that the Fed was all but biding its time until announcing a plan to begin cutting interest rates lower in March.
We can see that the gold market held this optimistic tone pre-FOMC because spot prices had rallied on Wednesday morning to a point just above $2050/oz, but the letdown from the Fed’s announcement quickly stripped back those gains and the precious metals’ chart fell steadily, returning to $2030 at the end of the session.
The immediate post-FOMC pessimism seemed to fade quickly. In Thursday’s session, the US Dollar gave back a lot of its Wednesday gains as Treasury yields also softened. Investors and managers seemed to be turning to the idea that if the FOMC needed greater confidence from improving inflation data (or more pressure from weakening in other macro-categories, like the labor market) to be willing to cut in March, there would be more than a couple opportunities for that data to be delivered. And so, maybe with the hope that a slight downshift in the January NFP number due Friday (as was the consensus call) might encourage the Federal Reserve to question just how long it would be prudent to leave rates at their current levels, gold prices actually rallied to a weekly high of $2060/oz in Thursday’s trading, only correcting to settle about $5 lower in the afternoon. From here, it looked like gold could turn in its strongest week-over-week performance in more than two months.
Again, however, disappointment, at least from a long-gold position. Where the marketplace was looking for the NFP—the number of new non-farm jobs added to the US economy—for January to reflect a modest decline from the prior month (roughly +180K) instead, Friday’s print blew the doors off of the consensus, coming in at 353K and revising December’s number by more than 100,000. The clear and immediate signal here: If the FOMC is to come under any pressure to lower interest rates to loosen financial conditions, that pressure will not be coming from the labor market any time soon. Reflexively, it has seemed that the asset classes we track most closely jumped back into the post-FOMC pattern. As the Dollar turned back higher alongside surging Treasury yields Friday morning, gold spot prices again plummeted from the highs.
Despite the rough-water landing for gold here at the end of the week, the yellow metal still appears resilient. What at the time of writing looks like a $20/oz loss paints an ugly intraday chart, to be sure, but if prices continue to consolidate just below $2040 (with very little risk of a profit-taking rush in the afternoon,) gold will still make a net-gain on the week’s trading. With a much lighter macroeconomic calendar next week and the potential for some further commentary from Fed officials to lay out their requirements for “greater confidence,” gold’s recent base camp seems to have held together through a turbulent week and may provide a strong platform for further gains in the first quarter of 2024.
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.