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.
On Friday morning, gold is closing a week in which things have generally moved only down and to the right, leading the yellow metal toward its lowest close since Q1, on the final trading session of Q2.
So, what kind of week has it been?
To the dismay of traders, managers, or prognosticators with a long-gold bias (and often, probably, long-gold positions), pricing of the shiny metal has spent another week at the mercy of the Federal Reserve’s expectations for the tightening cycle to continue on in some for in the second half of 2023. This is despite the fact that we’re now more than two weeks removed from the most recent FOMC meeting and its “June pause,” as Jerome Powell & Co have resumed a markedly hawkish stance in their public communications.
Although the biggest macroeconomic “moment” of the week, a joint panel interview with Fed Chair Powell and counterparts from the Bank of England and the European Central Bank didn’t arrive until Wednesday and didn’t drive a steep immediate drop in the gold chart, it has become clear that the investor projections and hopes to the contrary are starting to buckle under the weight of the US central bank return to such an outwardly hawkish position. For gold, this presents a great deal of downward pressure, applied consistently. And this week proved that the pressure can amplify the downside risks to gold even around the release of usually inert pieces of US economic data. Two released this week, on either side of Powell’s commentary, presented strong examples.
On Tuesday morning, after gold had managed to hold near $1925-30/oz to begin the trading week, the Durable Goods number for May (the monthly growth in orders to manufacturers for larger items, from TVs to jetliners) came in well above expectations. The news drove a general risk-on swing in the markets, as demonstrated by healthy gains on the day in all three major US stock indexes. The shift in investors’ mood was a sell-signal for safe-haven gold on those merits alone, but the yellow metal came under additional pressure as markets remain steeped in a paradigm in which signs of US economic health signal a persistence of higher rates for longer as the Fed continues to tighten. Gold spot prices slid $15/oz to the day’s lows at $1915 through Tuesday morning as the Dollar rallied with equities.
Because of Tuesday’s weakening in the gold chart, investors and traders were less compelled to sell prices lower on Wednesday as the market focus turned to hearing from J. Powell and his peers. From the US’ monetary perspective, Powell maintained the same line he has held since announcing a pause to interest rate hikes at the June FOMC: the hiking cycle will continue on until inflation pressure cools further because while the risk of a rough US recession resulting from the Fed’s crusade is present, it is not the most likely outcome. In the day’s trading, there was some mild slippage in gold prices, but the market found reliable support at $1910/oz.
Thursday saw the strongest shock of acute volatility of gold this week. Thanks again to where the Fed has held the market’s focus in recent weeks, the fast action in gold trading was in reaction to, of all things, the weekly Initial Jobless Claims number. The week’s number of new unemployment claims dropped to 239K, which is neither a historically low number, but as the week-to-week delta was -26K, it was accurately reported as the biggest one-week drop since late 2021. Initial Claims can be a volatile number, to the point of it being hard to derive any signals beyond the short term, as evidenced by just last week is the highest weekly number since...late 2021. But, again, the marketplace is locked into the current stream wherein positive US economic data is generally a hawkish signal for interest rates; because the sense that indications of a resilient US economy in spite of the Fed’s aggressive tightening cycle means that the Fed will continue on with the same. As Treasury yields ripped higher on Thursday morning, with the 10-year reaching near +3.9%, gold spot prices broke the solid floor at $1900/oz for the first time since Q1, briefly touching the week’s seabed below $1895. Although the super-heated rally in yields didn’t pull back on Thursday, the one positive signal we’ve seen from gold traders this week was the relatively quick correction of the initial collapse. Before lunchtime in New York, the gold spot retraced back to $1910.
Given the consistent theme of this recap, it does seem like gold has one more point of heavy downside risk to weather this week, with the PCE Price Index (regarded as the measure of US inflation on which the FOMC focuses the most) due Friday morning. Expected to be another indication that the Fed’s constriction of financial conditions is bearing fruit, it’s difficult to imagine it being a print that creates a tailwind for the yellow metal. The question, then, will be whether or not prices can continue to rely on support above $1900. Looking farther ahead to next week, the volatility we’ve seen on the back of typically inert data reports means that we should pay closer attention to data sets like the ISM Manufacturing Index coming at the start of the week before we get another key Jobs Report in a week’s time.
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.