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 into the future.
Following some down-and-up trading in a holiday-shortened week, gold prices have built modestly on the previous week’s gains as we move sideways into the weekend.
So, what kind of week has it been?
We haven’t gotten much in the way of key economic data these last four days, and news flow has actually, from a 5,000-foot view, been relatively mellow for a week with such a heavy slate of appearances from FOMC officials and the bulk of the World Economic Forum happening in Davos. There haven’t been any truly major headlines—well, there has been one event that certainly would have been market-moving the first time it happened, but (having lost count) we may be nearing a baker’s dozen over the last 15 years, so investors were somewhat non-responsive—but gold prices have mostly found tailwinds to ride higher this week rather than flagging lower in a less dynamic market environment.
It hasn’t been non-stop up-and-to-the-right all week, though. Through Tuesday’s trading, gold prices did remain in a muddled downward drift, as the very light trading during Monday’s holiday passed into a session where the dominant headlines came from some uncomfortably large misses in the quarterly reporting from some giants of the financial sector, and commentary by key Federal Reserve officials. As we expected, the remarks from the Fed applied consistent downside pressure on gold prices, as the speakers toed the partly line (which has only become more loudly exclaimed as the week has gone on) that the FOMC’s plans for 2023 remain aggressive, and hawkish, and removed from any thoughts of cutting rates before 2024. This was enough to subsume any boost the yellow metal might have gotten from the concern around bank earnings, as worry that did manage to snap a four-day winning streak in the US stock markets, kicking off what has proven to be one of the worst weeks in equities since…mid-December. By Tuesday night, spot prices for gold had slipped as low as $1905/oz. The chart would briefly break below $1900 support in the Asians session before a flush of buyers stepped in at the “cheap” marks.
Wednesday’s session, when we look back from farther down the road in 2023, may be what we mark as the first indication of a new market dynamic (or “paradigm,” if you’re very fancy) taking hold this year. During the European session, gold had risen higher sharply from the trough of the week, appearing to regain $1915 with little resistance. Stateside, in the morning, we got the only “tier-one” data set of the week—December’s Retail Sales numbers—and later on a run of reporting on growth in the US manufacturing sector. Across the board, these numbers were disappointing and painted a picture of an economy struggling under the pressure of still-high inflation and the constrictive monetary conditions the Fed has imposed to combat the same. For much of 2022, this kind of objectively bad economic news would produce a counter-intuitive, “positive’ reaction from investors. Gold prices often rose at least a bit, yes, but primarily we would see stocks rise quickly as the Dollar fell; the reasoning usually being that signs of the economy reacting badly to the FOMC’s medicine would convince the committee to lower the dosage or stop altogether.
This week, however, we’ve seen bad news, as Axios laid out nicely on Friday, “is bad again.” There was no optimism to be had that the Fed may have a change of heart, thanks certainly in part to how much effort the voices and rhetoric of the FOMC have put into communicating exactly that. US stocks had their very worst day of this very new year, and the Dollar strengthened via the Fed-reaction function and snuffed out the early-session rise above $1920/oz that gold had enjoyed.
Gold again found good support above $1900/, and had that been the effective “end” of the week, gold prices may have continued to lag there into the quiet weekend. On Thursday, however, with one of the most “we all see this coming” events since 2022’s first rate hikes, gold was finally given an opportunity to revel in the “bad news is bad in 2023” attitude that was taking markets over, as the Treasury Department announced that the US had indeed reached it’s “debt ceiling.” Gold prices had already been rallying higher in the early hours of the morning, breaching $1910/oz again as it looked like this would be “the day,” and when the news became official the yellow metal’s climb accelerated to take the $1930/oz level, around which gold spot has remained through some choppy trading (and a bit of softening) going into the weekend.
As we have another five days with little in the way of key economic data coming up, the next week will be an exercise in tracking market sentiment and investors’ reactions to how several parts of the Federal apparatus in the US—congress, the Treasury, and the Fed—conceptualize and communicate solutions to this issue (which is pseudo-fictional and entirely of their own making.) While the actual risk of a default on US debt is laughably slim, it’s unclear just how reactive investors and traders in gold and assets to which gold has some sensitivity (i.e., the US Dollar) will be to the next five days of debt ceiling stumping rhetoric.
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.