The gold price has shown support and resilience this week, weathering a considerable shift in overall market sentiment towards greater optimism and risk-appetite. Where other recently rallying commodities have sunk back, gold prices rebounded and have continued consolidating above $1900/oz.
So, what kind of week has it been?
There has actually not been a great deal of activity in the gold market worth opining on this week, with the exception of a sharp, aggressive dip in spot prices to-and-through (briefly) the key level of $1900/oz. While that was a disconcerting—and maybe expensive—morning for those with long gold positions, the sharp snap-back and relatively healthy (if unspectacular) trading in the yellow metal since midweek is sending positive signals for stability for gold around these higher price levels heading into the second quarter of 2022.
The drop in gold prices on Tuesday came after the week started with seemingly several factors stacking up to lift overall investor sentiment, and overshadow the risk-off mood that has been a tailwind for gold (and other safe havens) in recent weeks.
Overall, the market’s mood really has been improved this week and risk-appetite has rebounded as well, signaling that the next month (or the next quarter, even) might trade much differently than the one we’re closing out. What seems to be actual, hopeful progress made in peace talks between Ukraine and the Russian invaders, appears to be cooling the primary geopolitical risk that an ongoing war in Europe invariably pins to financial markets. At the same time, despite a great deal of effort being devoted to hand-wringing and doom-saying about the Treasury yield curve this week, there are signs that investors as a class are feeling more confident that the Fed will manage to pull off the tightrope walk of hiking rates aggressively to combat inflation, without tipping over into a severe recession.
These positive signals and developments encouraged investment in more risk-on spaces—particularly the tech-heavy sectors of the US stock market—at the expense of traditional hedges like gold. It was a run of headlines around the peace talks in Turkey that dropped the floor out from under gold on Tuesday morning, in a dip that looked for a moment as if it might allow the price to fall well below $1900.
Instead, we saw that gold still maintains relatively aggressive support that is had consolidated around that key psychological level. By the lunch hour of the same day, the spot market had recouped most of the early morning slide; from there, the chart seemed to have little problem climbing to a pocket between $1920-1935/oz, where is has remained for the second half of the week.
This resilience from gold, even while headwinds strengthen—just take a look at this week’s oil market to see a major commodity that has lacked gold’s ability to bounce back when market sentiment shifts quickly—could be an important development as we head towards the next FOMC meeting. Following this morning’s release of the March Jobs Report, which came in alongside expectations for a stable, continued recovery in the US labor market, investors turn their attention to the Fed and the possibility of another key rate hike in May. Not just a second consecutive hike, which is well out of the norm for the US central bank, but maybe even a “double hike” of +0.50%. Either of these moves from the Fed will, in a vacuum, be a strongly negative signal for the price of gold, which typically fairs poorly in higher rate environments. If the yellow metal can endure general shifts in market mood, as it did this week, and continue to hold on to a majority of its gained value, then it’s possible that we may not see the collapse in prices that some have worried about since the Fed signaled its move towards a new hiking regime.
And these inputs are constantly cycling back on themselves: Should gold endure the run to May’s FOMC meeting at our near $1900/oz, that could certainly encourage further investment in gold positions while the Fed’s efforts against decades-high inflation take time to make a real impact.
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 on Monday for our preview of the week ahead.