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 are moderately lower to end the week, looking likely to close Friday’s session near support at $1830/oz. The precious metal enjoyed relatively consistent support through the start of the week, but any support for non-Dollar safe havens has been weakened by the announcement of a $1.9 trillion COVID-19 relief package that the incoming Biden administration plans to bring to the Democrat-controlled legislature after inauguration next week.
So, what kind of week has it been?
Gold Prices Steadied this Week as Markets Mulled Whether or Not the Equity Rally is Getting Overextended at the Start of 2021
We have a blessedly less interesting week to recap than we did at this time last Friday and, until this morning’s rapid selling, gold’s price charts were reflective of that lack of clear momentum in markets overall.
In the first half of the week, we saw investors second-guessing the recent rally in US Treasury yields and, to a greater degree, the farther-reaching bull run in equities since November. Both major markets slowed their ascents on Monday and spend the next sessions in a state of flux without much in the way of economic data or narrative shifts to drive the charts. Perhaps unsurprisingly, the unprecedented second impeachment of the outgoing US President which was made official on Wednesday was of little importance to financial markets. By Wednesday, for lack of any better ideas, equity investors had slipped back into the posture of recent months: choosing look past turmoil in DC and still brutal counts of those infected and dying due to COVID-19, and to instead place trades based on optimistic hopes for a booming fiscal stimulus package from the forthcoming Biden administration.
Without a lot of crosswinds then, gold was able to remain fairly steady through Wednesday’s session even without significant price-drivers of its own. With the US Dollar again seeing strong selling, the yellow metal’s spot price found reliable support at $1850/oz and was given room to trade slightly higher through Tuesday and Wednesday’s books of business in the US.
Nearly 1 Million New Jobless Dimmed the Labor Market Outlook; Powell Promised that Rate Hikes Look Far-Off, and Tapering Will Come with a Warning
Trading become a little more interesting and directional on Thursday. Gold and silver—in fact, most traditional safe haven assets—began the US session well off the prior day’s highs as overseas investors positioned themselves for the Biden transition team to announce their plans for a wide-ranging stimulus package to support the US economy as one of the incoming administration’s first points of focus. Just prior to the morning release of US economic data, gold spot prices had fallen to $1840/oz. The one-day recovery in safe havens began with the data points as the week’s initial jobless claims data revealed and unexpected and unwanted spike to nearly 1 million new unemployment claims, sending a ripple of risk aversion flowing throughout US markets. In gold, the reach for safety saw prices quickly return to previous support at $1850 before the start of cash trading in equity markets forced a mild pullback.
Initial jobless claims: 965,000, unfortunately clobbering estimates for a still-elevated 789,000.
The weekly increase of 181,000 was the largest since late March.
— Brian Chappatta (@BChappatta) January 14, 2021
Gold prices’ second (and longer-lasting) tailwind of the day came from the culmination of this week’s Federal Reserve calendar, public comments and Q&A with Fed Chair Jerome Powell. While the Chair’s points were nothing surprising to regular watchers, markets took to heart the key points: A reminder that under the Fed’s updated policy framework the FOMC plans to hold interest rates at ultra-low levels until consumer inflation not only reaches the 2% target but demonstrates further momentum to rise past it; A clear statement from Powell that the Fed will give markets appropriate guidance ahead of tapering the current rate of asset purchases in support of the US economy rather than risk a repeat of 2013’s “taper tantrum”; And that Powell and the Fed see now as too early to even discuss such tapering. The broad strokes here for gold traders and investors is that an accommodative environment for gold to move higher, from a purely “fundamentals”-focused position, will remain in place. That the Fed remains committed to letting inflation accelerate implies the demand for hedges to said inflation will at least remain steady, and the reality that interest rates will remain nailed to the floor at the same time lessens the competition gold might face from yielding instruments like US debt for those hedging trades.
US Investors Sell the News and Gold as Biden’s Covid Relief Plan Outline Delivers on Long Held Hopes (Maybe)
This friendly outlook helped the yellow metal hold on to positions near $1850 at the end of Thursday after the choppy trading that usual accompanies a live Q&A with Chairman Powell; But the safe havens’ stabilizers gave out again during Thursday night/Friday morning trading. With the formal release of the Biden team’s nearly $2 trillion proposal for a COVID-19 relief package on Thursday evening, equity markets have dutifully “sold the news,” seeing that the plan very closely matches policy expectations that had already been priced in to stock valuations. While stocks have been selling to close the week because there were no upside surprises in the announced plan, safe havens—with the exception of US Treasury notes and the “cheap” Dollar—have also been falling, because the Biden plan (at least in theory) delivers on the hopes that markets had for a more aggressive stimulus package than we’ve seen so far.
Heading into the long weekend, gold has slowed it’s decent as investors have been able to fully absorb the details—and the chances of success—for the Biden relief plan. At the time of writing, the yellow metal seems to have again found decently strong support at $1830/oz which could present a solid launching pad for next week’s trading. US equities have continued to fall and will close with a corrective loss for the week.
We have a four-day trading week in the US coming up, starting on Tuesday. The economic calendar is appropriately light, and so our search for market drivers will remain focused on the narratives around the globe’s attempt to slow and then stop the Coivd-19 pandemic and the transition of power in Washington DC, with Joe Biden’s inauguration set to take place on Tuesday.
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.