Happy Friday, traders. Welcome to our weekly market wrap, focusing on the last five days of trading in gold, the Dollar, and related assets.
This week has been another volatile (key word, that) and busy run. Gold prices are realizing a loss of roughly $50 from last week’s close, and there’s so much to talk about that I don’t want to burn too much of your time on a preamble.
Let’s get into it: So, what kind of week has it been?
Gold Prices Fell from the Highs on Monday as the Market Digested an Emergency Fed Cut
The US markets were still working to digest the drastic inter-meeting measures enacted by the Fed on Sunday evening. Equities were doomed to another stunningly brutal day of selling.
— Bloomberg Markets (@markets) March 16, 2020
Following a temporary trading halt as the first stability circuit-breaker was tripped shortly after the market open (for already the third time in a week,) the Dow would close the session down nearly 3,000 points while the S&P 500 bled 12% overall. Gold, though, had a decent recovery for the day.
Prices found the bottom for the session, and apparently the line of support for the week, near $1455/oz shortly before our weekly preview went up (silver found its own nadir earlier in the morning, falling temporarily below $12/oz.) With stock and the Dollar weakened, gold’s trading pattern through the late morning and the afternoon was particularly volatile but a smoothed trendline would show the yellow metal climbing through the day to close near $1515.
Taking a look at a couple of the key drivers of recent gold selling, it’s not surprising that ultimately spot prices would struggle to hold onto $1500 by the end of the week. Any trading session, for now, that involves even a temporary halt to trading in equities will focus the “sell what you can” impulse on assets like gold. At the same time, Monday brought another momentous collapse for gold prices with Brent crude falling below $30/barrel. With oil leading the way down, we’re still seeing a tremendous amount of pressure on the raw commodities complex (acutely felt by silver prices.)
Lastly of note from Monday, the New York Fed’s regional manufacturing survey was released and left a crater, falling to a record depth of -21.5. Gold and Dollar markets paid little mind to the news, but we wait to see how rough the Covid-19 crisis will be on US manufacturing over the coming weeks. (Based on the 7-year low that Thursday’s manufacturing read from the Philly Fed turned in, the shock may be coming sooner than later.)
Gold Saw Its Best Gains of the US Trading Week on Tuesday as Equities Rebounded
Gold slipped and sold below $1500 again during the overnight sessions to set a base at $1470/oz, but prices would ultimately rise alongside a rebounding US stock market Tuesday. Rallying on the relief of imminent passage of a first raft of fiscal stimulus from the US Congress, equity markets began the session on the good foot and were encouraged further on news of more (potentially $1.2 trillion more) fiscal stimulus in the works and an additional package of measures from the Federal Reserve.
Spot prices for gold were given some breathing room with rising equity values as margin calls and the concurring rush to cash eased up, and the yellow metal had lifted to just below $1500 as US markets opened. While it was a day of mostly positive news for the US economy, another concerning indication of a slowdown arrived as February’s Retail Sales data suggested that consumer spending had been weakening even before the heaviest impact of American efforts to combat Coivd-19 could be felt.
Having punched back through $1500/oz, it was the news of the Fed’s funding facility for commercial paper operations—a move aimed at easing access to financing for stressed (non-bank) businesses—that shot gold to its post-Sunday peak of $1550 in the spot markets. While the move doesn’t directly pass through to gold valuations the way an adjustment to short-term interest rates does, the news impacted gold trading in two ways: it drew equities higher, raising optimism in markets and alleviating the pressure to cash out of gold positions; and it further affirmed the Fed’s commitment to keeping money easy in an effort to buoy the economy, locking in an assumption of lower interest rates for longer.
Following a rejection from $1550 as gold’s rally was slightly over-extended, the yellow metal would calm in afternoon trading, running along a midline near $1530/oz into the close. Stocks closed well into the green, with the S&P up 6% and the Dow making gains of more than 1,000 points as equity volatility continued to run at historic levels. A sell-off in treasury bonds saw the benchmark US 10-year yield return to 1%.
Soaring Market Volatility Continued Wednesday as Gold Slipped Below $1500/oz
The global reopen on Tuesday evening saw gold prices taking a slight rally, but a selling would come in shortly after. As global equities dove lower, once again, in the thrall of global fear around the pandemic, the yellow metal sold down towards $1500. Trading flows in the early hours of the New York morning were choppy while gold clung to that brief level of support but with the open of US equity trading, as it became clear that American stocks were headed for another bloody day following yet another limit-down trading halt, gold prices fell through support and into the range of $1480/oz. The pressure of liquidation once again dominated the metal’s trading flows. There was a failed rally higher in the mid-afternoon, but ultimately gold closed at $1485 and has spent the rest of the market week straining to trade higher with any consistency.
Government bonds saw powerful selling around the world as the US 10-year’s yield solidified its return to 1.0% while Dollar indices ran hotter and higher, marking the global rush to cash that continued to hammer gold values. Also putting a headwind to gold was pervasive weakness across the raw commodities sector as demand fears pushed oil prices to astonishing lows and copper trading saw its deepest single day fall since 2008. A late-session rally in the S&P as the Senate passed the first virus relief package would spare the S&P a full 10% loss on Tuesday, but the damage was still done.
Markets Were Calmer Thursday (But Everything is Relative)
The efforts world’s leading central banks continued to push liquidity, support, and even some amount of optimism into the market system, while also shifting some assets’ trading patterns: Following an emergency meeting, the ECB on Wednesday evening announced a massive €750 billion debt purchasing plan to support the shared currency and economy. Later, mid-morning on Thursday, the BoE would announce its own inter-meeting moves, cutting policy rates to near zero and spinning up bond buying. Gold prices saw a brief rise on the ECB announcement, but as the week’s incredible level of equity market volatility persisted in the overnight sessions with major Asian indices falling further while Europe’s Stoxx 600 made gains, selling continued in the gold market and the yellow metal slid to $1470 as silver prices once again dropped briefly below support at $12/oz.
Gold prices saw some signs of moving higher as US business began, with a surprising 70k increase in initial jobless claims for the week. While it was inevitable that the economic strain now circling the US would see an increase in unemployment, this spike has come earlier than expected and led to some dire predictions by analysts and economists.
Rise in jobless claims is just the beginning. Unemploy rate likely to be 6%+ by end of year and then higher — if we don’t act pic.twitter.com/EalAEzfVLu
— Steven Rattner (@SteveRattner) March 19, 2020
Following the announcement we saw gold trade a little more like we’re used to, getting a safe-haven bid of the ground. Still, there was little in the way of upward momentum to be found. Gold prices chopped throughout the day as they have for most of the week; a smoothed trendline for the day will show spot prices running along the line of $1470/oz, roughly where the yellow metal would close for the day.
Elsewhere during the US session, markets were somewhat calmer—but only relative to the madness of prior sessions. The steadily increasing flow of monetary and fiscal support measures announced by governments and central banks served to mellow the week’s market turmoil and saw big money investors stepping into risk markets to “bargain hunt.” We also saw the White House put its thumb on the scale a bit, with comments from POTUS directly impacting both a slight boost in the S&P and a record rebound in oil prices.
Buyers are Cautiously Toeing Back into Risk to End the Week
As we move to close out the week, Thursday’s nascent sense of market optimism has somewhat surprisingly managed to hang in. As overseas equity markets saw buyers stepping back in to lift Asian and European indices higher, gold enjoyed the same support while managing to trade as high as $1515/oz in the spot markets. As US trading has kicked in however, both equity values and gold prices are struggling a bit under the pressure of a four-way cross of timed options and futures contract expiry. The Dow and S&P are struggling to continue the global rally in stocks while gold has sunk back to $1480 mid-day. Looking just ahead though, the US Treasury’s 10-year is yielding below 1% again and the Dollar’s recent bull run is cooling, suggesting that gold may be given a bit of room to run higher if other conditions next week are supportive of the yellow metal.
The economic data map for next week will mostly focus on giving us more information on the state of US manufacturing—so we’d better brace for some turbulence around those numbers. At least as much as the pervasive market narrative will allow. At the end of the week, we’ll get an update on the Fed’s inflation measurements as well as Personal Spending. Given the most pressing current concerns about the US economy, that may create more volatility in Dollar and gold pricing than we typically see on a Friday.
For now, enjoy some time away from your screens this weekend, traders. I know most of us can’t really “get out there” at the moment, just make sure you do what you need to recharge for next week. I’ll see everybody back here on Monday for a preview of the week ahead.