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.

Rescued by an unexpected tailwind on Thursday morning, gold prices are set to close the week with the first net loss in three. But it’s not as ugly as it could have been.

So, What Kind of a Week Has it Been?

In recent market memory, a trading week that featured the double-header of a new CPI report on consumer inflation in the US and a pivotal, not-entirely-certain FOMC interest rate decision would have been earmarked as one likely to pump the kind of volatility into various markets that would build a tailwind for gold prices, at least for a brief period. Our sense heading into this week, however, was that the yellow metal looked vulnerable as the current state of monetary policy and the economic outlook presented few reasonable possibilities from which gold could really benefit. Stuck between a pet rock and a hard place, some might say. As gold spot prices appear set to close the week out in the red, that suspicion seems to have become a reality.

The first cut against gold fell on Tuesday morning, following the May CPI report, after prices had managed to find some stability around $1965/oz to start the week. The key reads for inflation— the headline CPI number and the less volatile “core CPI”— both came in slightly cooler than expected. Crucially, the headline inflation number printed at +4.0% year-over-year, which is the lowest inflation print in more than 24 months. This drove the dominant headlines in markets on the day and applied direct downward pressure on gold prices. The spot chart fell steadily through the morning before finding support just above $1940.

It’s a market response that tracks with expectations and our understanding of what has driven gold pricing in the post-pandemic monetary cycle: The data set both signals that inflation is cooling (muting one of the most traditional motivations for gold-buying,) which also implies that the Fed’s steep tightening of financial conditions is bearing fruit (which relieves pressure on the Fed to reverse cuts in the near-term, or even to pause for long.)

Gold prices managed to recover overnight before actually riding an aggressive rally in the European markets for Wednesday that brought spot prices back to $1960. However, Fed Day was always looming over gold sentiment leading up to this week, and although the Federal Reserve did announce a decision to pause the current rate-hiking cycle, the update was clearly provided with a hawkish bent and an insistence that a pause in June in no way precludes another hike (of any size) in July. Not only gold prices but also the key averages for US stocks plummeted on Wednesday. The precious metal dropped and slid in alternating spurts throughout the session before resting at a new weekly nadir of $1930.

There has been one surprise this week that benefited gold prices and has put them in a position to tie out the week with just a moderate 5-day loss rather than a deeper decline. In the early hours of Thursday morning, the European Central Bank announced an overnight interest rate hike of +0.25%, which sent the Euro soaring against its key trading partners, including the Dollar. The resulting weakness in the US currency allowed gold its first real rush of breathing room for the week, and by the time New York markets opened gold spot had rallied to back to $1955/oz and above.

Prices have mostly held serve from there through Friday’s session, but we have to keep in mind that it’s a little bit of a false gain. We’re not seeing a direct re-pricing of gold or the Dollar, but rather the second- and third-level impact of the ECB’s acceleration of the Euro. Add to that the clear sense that investors’ solidifying expectations that the US central bank’s hiking cycle may not be done for 2023 is putting a heavy ceiling on the further gold upside, and it gives the impression that next week— one in which there is precious little in the way of key macroeconomic data— may be a tough one for gold spot to weather at Friday’s levels.

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.