GoldPrice.

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 might be ending the week with some momentum: After a Thursday morning climb, gold has continued to rise slowly but steadily through the overnight session and, just ahead of the US market open for Friday is trading at a premium to Sunday evening’s opening bids.

So, what kind of week has it been?

With just one more trading session left in the week, the most impactful “event” (from a market perspective) that we’ve traded through is a European Central Bank decision; and…yeesh…if that’s not the sign of a dreadfully slow week, I’m not sure what is.

At the start of the week, in our Monday preview, we offered a note of optimism for gold at the outset: The US Dollar’s rampaging bull run seemed to be slowing down after gaining more than 1% in the previous week alone, and as a result, the yellow metal was allowed some headroom to rise; through Sunday evening and into Monday morning’s US trading session, gold appeared to take advantage of the opportunity to take some of investors’ attention back from the Dollar and reset its footing on support above $1700/oz.

By Tuesday, which was a very strong day for US equity markets but seemed low-energy in many other asset classes, gold trading had also been drained of any real volatility and spot prices rode the line just above $1710. On Wednesday—however temporarily—the bottom dropped out.

A Surge in Risk Appetite Sent Gold to New Lows

After the best intraday performance by the S&P 500 in nearly a month (and similarly strong, or stronger, moves in Dow and NASDAQ,) it started to be remarked a little more often that the US stock market appears to be having a pretty solid July for itself: after Wednesday’s session, the markets had taken back a lot of the losses taken since mid-June. On the back of consecutive days of the major stock indexes being green at the close, everyone’s favorite intangible, untestable motivation for higher stock prices returned to the fore, explained with soft-science words like “optimistic sentiment.”

Market tone is starting to feel similar to how it did in May and early June before the CPI print threw things into a tailspin, except arguably the bar to even more hawkish monetary policy in the short-term has gone up.

— Conor Sen (@conorsen) July 19, 2022

Rational or not, investors had had their risk appetite pumped to near euphoria at times, cheered on by what has been a very healthy wee for Q2 earnings reports. Gold prices started falling late Wednesday morning rose-tinted trading had investors reaching for risk over the traditional safety of gold. Late in the afternoon, gold’s slide picked up momentum, and spot prices fell below $1700/oz en route to the lowest trading price in a year.

From there it looked like, with markets expected to be somewhat lightly attended until mid-August and (reasonable to assume, right now) another hawkish meeting and hike from the FOMC in a week, there might not be much for the gold chart but air pockets below $1700, especially as Asia’s Thursday session let the yellow metal fall to just above $1680/oz. Thursday morning, however, allowed gold the chance to reverse course and pare back a lot of the week’s losses.

A Big Move from the ECB and Disappointing US Data Adjusted the Market Mood Thursday

As ECB makes a bigger-than-expected rate increase, it says "the frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach."

Frontloading = quickly becoming 2022's central bank buzzword

— Jeanna Smialek (@jeannasmialek) July 21, 2022

First, the European Central Bank on Thursday announced its first rate hike in more than a decade and also caught the market off-guard, hiking by twice the size expected (50bps vs. 25bps.) The Euro surged on the news, showing signs of life for the first time in weeks and pulling back from parity with the Dollar (which hadn’t been reached for decades.) On Monday, while the news didn’t provide a tailwind for gold it did clear the path for gold to move higher without resistance from a surging Dollar. Well, with less resistance, anyhow.

There was also a double-kick of disappointing macro data on the US economy: Initial Jobless Claims rose against expectations, reporting over 250,000 new unemployment filings for the first time since the start of the year and continuing an upward trend that goes back to April; released at the same time, the Philadelphia Fed Manufacturing Index also disappointed the consensus by indicating a contraction in industrial activity for the second consecutive month.

Philadelphia-area manufacturers’ outlook for business conditions slumped this month to the lowest level since 1979 as gauges of future new orders and planned capital expenditures both deteriorated https://t.co/ndYWBU8T4t

— Bloomberg Economics (@economics) July 21, 2022

These two data points are typically second-tier at best, but their impact on investors and managers is amplified this week by virtue of being some of the only macroeconomic prints on the docket.

These factors—a Euro surge spurred by the ECB, and a pair of disappointing data sets—served to pull the Dollar backward a few steps and the gold market took quick advantage of the opportunity, rising higher even before the US cash markets opened and accelerating after. Gold spot prices regained $1700 before settling back near Tuesday’s sticky spot just above $1710/oz. Further to the yellow metal’s credit, even as the Dollar has picked back up a bit during the last overnight sessions of the week, pre-market on Friday morning gold has been able to carry its momentum forward and now, surprisingly enough, is trading in the black for this week.

Next Up

The last week of July looks to be much more “action”-packed: Not only is the final FOMC meeting before the Fed’s Jackson Hole gathering on deck—it’s not question of will they hike, but “how high?”—but a first look at the US economy’s GDP growth in Q2 prints on the same day with many observers and investors wonder if we’ll see a consecutive contraction to signal a “technical” recession. Meanwhile, other will wonder if that is a data-point that would even matter given that (see Q2 earnings, the June Jobs Report, etc.,) things now appear quite so bleak. We’ll also have the Fed’s PCE read on inflation data due at the end of the 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 on Monday for our preview of the week ahead.