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 are soaring at new highs for the spot market, and look set to book an all-time-high on the week's close. 

So, what kind of week has it been? 

Everything about the gold market's trading for the first full week of March has to be viewed in the context of the yellow metal ripping higher early in the time series, crossing into new highs, and consolidating those historic levels with relatively little resistance. 

The playing board for gold traders this week was set early. After a mild overnight session following the Sunday evening opening, the start of New York trading prior to and through the opening of the cash market session saw a sudden surge in prices for gold in both spot and futures markets. Before lunchtime on the East Coast, spot prices had climbed beyond $2115/oz—a new high for the gold market—and the charts have not looked back since. Until it can be reasonably proven otherwise, we can only assume this is driven by the same factor that has dominated the momentum of the yellow metal for more than two years: investors' expectations for the path of monetary policy in the US and their efforts to profitably position for those outcomes. What is of interest here, however, is that the (presumed) reality of "this is because of the Fed" can be viewed through two different lenses.  

The first is the simplest because it's been the case for the majority of our current monetary policy cycle: Gold is rallying higher on the projection that the FOMC will acknowledge its "victory" over post-pandemic inflation by cutting interest rates sooner than later. As a result, the US Dollar will weaken from eye-watering highs, and Treasury yields will fall; these and other factors will improve gold's status as an alternative safe-haven investment as compared to the Dollar, further supporting higher prices for the precious metal. The second possible view is a little more interesting. Could the sharp rally in gold be instead driven by investors shifting into concern that the Fed will stubbornly wait too long to begin cutting rates and will end up kicking the US economy into the recession that has for so long been (narrowly) avoided? In that case, we would also expect a sudden surge in gold investment as a safety play to hedge against greater concerns of instability in the world's number one economy. Occam's Razor notwithstanding, when we look at Monday's trading across multiple asset classes, it does lend some credibility to the latter possibility. (If the market as a whole was positioning for earlier rate cuts, we would have expected the Dollar to fade at the same time rather than remain elevated, as it did. US Treasury yields were also unbothered.) 

One might hope that the week's macroeconomic focal points would have made investors' views more distinct, but this hasn't proven to be the case. The highlight of the FOMC's public dance card this week was Chair Jerome Powell's semi-annual testimony to Congress. In contrast to his most recent public comments, the Chair declined to stake out a firmer declaration of the committee's views on the timing of rate cuts or the perceived need to hold rates at their current levels to "finish the fight" against inflation pressures. Because of this, it's easy to find reputable coverage that either highlights signals that the FOMC is moving closer to comfort with a first-rate cut in the months ahead or else that they remain unready to act. Despite the lack of clarity on why investors continued to move into gold positions (beyond the now-relevant motivation of not wanting to be the last one into the trade,) the yellow metal continued tracking steadily higher through the week until Thursday's trading brought the chart to and through $2160 with relative ease. 

Our other point of interest for the week, Friday's February Jobs Report, certainly drove some acute volatility into gold trading but still doesn't really answer any questions for us. Once again, the least surprising of all "surprises" came again as the headline NFP number strongly outperformed the consensus projection, this time by +750,000—a clear signal that the Fed still has room to hold higher rates against the US economy without cracks in the economy's foundation. At the same time, the headline inflation rate jumped to nearly 4.0% last month, and the prior month's door-busting NFP number was meaningfully reduced. So, maybe there are some reasons for concern about the US economic performance in very tight conditions. But are investors making their bet on gold because they foresee this as pressure that will force a turn from the Fed? Or because they worry it may be too late? 

It's possible we won't really be able to tell what is behind this dramatic repositioning into gold by the broad investor until a key actually turns, until the Fed either signals their intent to cut, or else it becomes more evident that their (overly) cautious approach is problematic. But next week's data calendar may bring us a more meaningful reaction to parse, with an updated set of inflation data due on Tuesday. 

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 for another market recap.