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 are limping into the weekend after sliding through a short week as a result of some surprisingly strong US economic data, but primarily as a result of the face of the Fed resuming a hawkish commitment to continuing to hold financial conditions in traction until inflation cools further.
So, what kind of week has it been?
Gold traders’ holiday-shortened week started out with a serious downside surprise, although all it really seemed to amount to was an earlier arrival of the inevitable. Spot prices exited the three-day weekend at a relatively healthy level, just above $1950/oz, with the market focusing on upcoming congressional testimony from Fed Chair Jerome Powell. This would be the first public commentary from a high-profile FOMC official since the central bank’s decision last week to “pause” the rate-hiking cycle for at least one month. Given the hawkish tone of the Fed’s drafted statement and (more so) Powell’s post-meeting press conference, there was little hope that the Chair’s semi-annual visit to Capitol Hill would deliver a positive driver for gold prices (or for anything other than the Dollar, and Treasury yields.)
Still, the initial stance in the markets was one of holding a line and setting the table during the Asian and European sessions in the earliest hours of Tuesday. Powell’s testimony loomed ahead on Wednesday’s schedule, and so most anticipated a hard ceiling on any momentum for the yellow metal the day before, but it was still reasonable to expect a mostly-flat session for gold and other assets. What appears to have kick-started the sell-off a day early, of all things, was a print of US housing data. When the numbers for new building permits and new housing starts for the month of May drew a picture of the strongest acceleration of home-building in 30 years, the pursuant surge in the US Dollar sent the gold chart into a ditch. Against a soaring Greenback, gold fell $1920—a loss of roughly $30/oz—before buyers stepped in for support at the cash-market open.
This Tuesday fall initially served to take the sting out of the Fed Chair’s first day of testimony in Washington if we’re looking for positives. Ultimately the majority of the hours that are spent in these appearances before the House and Senate banking committees is fluff, with much more grandstanding from the politicians in the room than a revelation about the state of monetary policy or the Fed’s plans for it. But the appearances do open with a (meticulously) prepared statement from the Chair, which can matter a great deal, and it was here that Powell again struck a very hawkish tone. Some coverage, in fact, has gone as far as characterizing the statement (and subsequent responses from Powell) as the Chair virtually guaranteeing additions hikes to come. The pre-testimony release of the opening statement would normally have sent gold spot prices sharply lower, most likely, but this impact was muted in the wake of Tuesday’s sell-off. As a result, gold was actually able to hang on to a mild rebound it had made to $1930 in the spot markets.
Nonetheless, the conviction of Powell’s position and the lack of any dissension from a handful of other FOMC remarks has weighed heavily on gold through the second half of the week. The pressure overwhelmed gold’s support by Thursday morning, and the yellow metal fell further again before bottoming out for the week just above $1910/oz. In Friday’s trading, the attention of the broader investor group has returned to fretting about what this commitment to continue hiking could mean for the stability of the US economy (or, more coldly, the valuations of US stocks) through the rest of 2023. This slide to the risk-off side of the spectrum has provided a thin wisp of a tailwind for gold at the end of the week, and bids have rallied to $1920—a mild relief but one that still leaves this week looking like the worst for gold in a handful of months.
Next week, traders might do well to prepare for more of the same. The macroeconomic data calendar is sparse again, and Jerome Powell (among others) has two more public appearances scheduled as investors and managers prepare to close their books for Q2 2023.
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.