Happy Friday, traders. Welcome to our weekly market wrap, focusing on the economic data, news flow, and market narrative that had the biggest impact on gold prices (and may continue to in the future) as well as US stocks, the Dollar, and other key correlated assets.
Gold prices are reaching higher in Friday afternoon’s trading after sustaining some technical consolidation from the mid-week highs.
So, what kind of week has it been?
Monday: A Calm Start to the Trading Week Saw Gold Prices Solidify Above $1755/oz
The first session of the week was fairly indicative of the low-energy trading we saw across most markets over the last five days. As we touched on in our weekly preview piece, gold was already signaling at the start of the Monday session in the US that there was enough bullish support to hold the metal above previous resistance at $1750/oz; the steadily climbing coronavirus infection rates in the US by Monday had already increased to a low grade buzz of concern and risk aversion that held support for most major safe haven assets (although this specifically—and importantly for gold’s upside—left the US Dollar behind.)
In a more acute sign of negative trends, Monday morning’s read on Existing Home Sales for May showed that the market for previously owned houses fell to a nearly ten-year low. While industry groups claim there are also signs that the summer with show a sharp and healthy rebound in the housing market, it’s still a concerning sign for those who’d pinned their outlook to the prediction of a quick v-shaped recovery for the US economy’s key sectors.
Despite the concerns around Covid-19’s resurgence and other pressures on the US economy, while gold prices traded with confidence just below $1760/oz the US stock market also made moderate gains on Monday, and investors also did more selling than buying of riskless US Treasuries as the 10-year’s yield moved back up to 0.7%.
Tuesday: Flubbed Lines on Monday Night, Worried Markets on Tuesday; Gold Prices Touch to $1770/oz while Silver is Blocked at $18
The defining action of Tuesday’s book of business actually happened in the late of the night (in New York.) US Treasury yields and stock market futures took a nosedive as markets were roiled by comments from the White House’s key advisor on China which appeared to suggest that the already feeble US-China trade truce was kaput. Gold spot prices only had the briefest reaction to the headlines, and markets in general returned to normal functioning as the White House took quick steps to say that the original comments were taken out of context and that the current trade deal remained in place. However, the brief market spasm made clear just how tentative the trade peace currently is between the world’s two largest economies, and just how quickly a new trade war would land like a stone to squash the global economic recovery.
With those fearful tones in mind and amplified by the still worsening spread of coronavirus cases in re-opened US states, gold prices seemed the key beneficiary of risk aversion. As the Greenback fell to a two-week low spot, gold rose to strong gains and a solid perch just beneath $1770/oz and consolidated that level during another mostly quiet US session. Though US Treasuries endured some mild selling in the afternoon, US equities made more muted gain on the day despite the sense of rising risk in the world’s most developed economies and markets.
Wednesday: Gold Prices Consolidated Below a 7.5-year High While Investors’ Concerns Over June Infections and November Elections Dominated Market Moods, Boosting the Dollar
The coronavirus’ surging revival across the US finally broke the levees on Wednesday as the midpoint of the trading week was dominated by gloom and stability concerns spreading out from the US. Texas, Florida and California all saw new records set in overnight case reporting, and New York joined other states on the East coast in requiring visitors from some regions of the US to quarantine for two weeks. Adding to the general unease of markets, Chicago Fed President Charles Evans expressed the FOMC’s concerns that repeated outbreaks posed an increasing threat to US growth and the labor market, while global currency traders for the first time began voicing concerns about the shock of instability that could rock FX markets if November’s elections don’t produce a clear winner on the day.
Risk appetite shrank rapidly during Wednesday’s US session. While gold had been the prime beneficiary of investors rotating to safety at the start of the week, the pounding that equity markets took from the open (the S&P slid more than 2.5% on the day) meant that most risk-off trades on Wednesday became a reach for cash. The US Dollar rallied against all of it’s G-10 counterparts as Treasury yields fell.
While gold spot prices endured some selling as the Greenback ran hot, the precious metal’s gains for the week—which included a 7.5-year high point in the futures markets overnight-- mostly held, and the chart closed out Wednesday’s session near to $1765/oz.
Thursday: Gold Held Gains Even as Dissonant Risk Appetite Rallied
As we’ve seen time and again in recent weeks, the markets’ mid-week reality check was short-lived. With investors—presumably—continuing to bet on further stimulus from central banks and treasuries as an unbeatable panacea for the current pandemic-driven economy crisis, a slightly choppy equity trading session ended with America’s major stock indices all up by more the 1% as the S&P 500 notched its biggest gain in a week. The Dollar moved slightly higher as well.
Of course, just because risk markets traded as if everything was peachy on Thursday, that didn’t make it so. Coronavirus infections and hospitalizations continued to rise at a rapid and threatening pace as hospitals reached capacity in some major cities. On the data front, another disappointing report on stubbornly high weekly jobless claims suggested that the labor market recovery had begun to plateau even before this recent spike in new Covid-19 cases. The persisting level of fear and uncertainty made sure that, even as equities were charging back, safe havens saw steady interest. The higher than expected Initial Jobless Claims number alone sent gold spot prices surging by nearly $10/oz following corrective selling in the overnight session. Our yellow metal continues trading with strength and ended Thursday’s round back at a lofty $1765
Friday: Gold Has Endured Some Technical Correction to Return to Multi-Year Highs, While Markets Are Getting Hit with Another Dose of Reality Today
As things stand, we’re closing the trading week with gold’s most volatile session. The yellow metal saw some further selling—within the bounds of an expected correction following the multi-year highs reached mid-week—that pushed spot prices to $1760 in a move that accelerated with the release of the Fed’s consumer spending and inflation data for May.
PCE and Personal Spending/Income data for last month painted a picture of a monthly increase in consumer spending even as household incomes contracted, as we generally expected the data to do. Combined with muted inflation, at least by the Fed’s preferred metrics of prices, it generally paints a gloomy picture for the immediate outlook with many economists now expecting that the US will see a steep drop in key consumer spending over the summer months as the loss of a paycheck in many households will tighten the purse strings.
Either because of a pre-market rotation to cash due to dimmer short- to medium-term recovery hopes, or in a continuation of a technical price correction from gold’s nearly eight-year highs (or, very possibly, a combination of the two forces,) the yellow metal fell sharply ahead of the stock market’s final open for the week before seeing very strong support step in at $1750/oz. From there, as the stock market has tumbled hard and fast through the morning, gold is once again near the highs of the week. With spot prices at the time of writing looking to ring the bell as high as $1770/oz and futures prices sniffing $1800, gold looks well-positioned to take another solid step higher next week even while facing some technical pressures.
— DailyFX (@DailyFX) June 26, 2020
Next week, we’ll be closing out the month and heading into July with important updates on state of manufacturing activity in the US economy and of course the month Jobs Report.
For now, do enjoy your weekend, traders. I’ll see everyone back here on Monday for our weekly preview of the trading calendar.