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.
The gold market appears to be wrapping the week in a pause after managing to come out of a steep Friday slide still in the green for this week.
So, what kind of week has it been?
The widest swings in gold pricing over a five-day span in recent memory were clearly and aggressively driven by the two macroeconomic anchor points of the week and by the destabilizing headline flow out of Federal-level negotiations around the US debt ceiling construct.
Most of us had Wednesday circled on the calendar as Moving Day for gold spot prices, awaiting the afternoon’s FOMC decision. In reality, the strong rally for the yellow metal this week— which would eventually have prices flirting with bids and offers at all-time highs— kicked off on Tuesday as a wave of worry about instability in the banking sector (following on from the sale of a distressed First Republic Bank to JPMorgan) swept through financial markets. Ahead of the potentially too-strong US Dollar, gold assumed its most traditional role as a hedge against big economic fears, and the shiny commodity’s spot prices climbed to-and-through $2000/oz with very little resistance in the morning and consolidated gains through the afternoon and into Wednesday morning. Looking back from Friday, the fact of this being the driver of prices above the major psychological number of 2K has been to gold’s benefit later in the week.
The hard number(s) of the FOMC decisions an announcement on Wednesday afternoon came in exactly as expected by the consensus: another +0.25% interest rate hike. The news was, again, widely expected, and so it, by itself, couldn’t claim credit for strong market movement. The real driver on Wednesday was the adjustments to the committee’s prepared statement that, in theory, open the door to at least a temporary pause at the June meeting ahead. Although not a complete surprise (and also not a clear guarantee, especially in light of this week’s labor market data, that the Fed will actually stop tightening financial conditions) the gold market soared into a reverie after the release of the statement, seizing on a weakening Dollar and projections for a lower-rate environment. The highest “tradeable” price that gold spot reached on Wednesday, in the late afternoon when overseas markets had their time to react, was in the neighborhood of $2060 (although there were orders that got filled as high as $2080/oz.)
Activity calmed, somewhat on Thursday, as the run of concerning headlines and inflammatory statements from both sides of the US debt ceiling discussion eased, and markets had a full day to digest Fed Day and factor it into plans, positions, and forward-looking models. Gold weathered an anticipated round of profit-taking off of the Wednesday highs and held steady near $2050. Dollar-denominated commodities as a general basket benefited from the weakened Greenback, with other precious metals gaining in particular— silver spot prices reached a 12-month high.
Friday’s gold trading, with almost all activity crowded into the morning, pre- and immediately post-cash market open, has seen the aggressive reel-back of FOMC gains. Here again, the cause has been obvious. On Friday morning, for the 13th consecutive month running, the number of new jobs marked in the Non-Farm Payrolls number of the April Jobs Report meaningfully outperformed projections; this time, the score was +253K (actual) vs. 180K (projected.) As we anticipated, this headline print has been interpreted as an argument against the Fed needing to seriously consider a pause to the rate-hiking cycle in June. After all, the FOMC’s statement (and Chair Powell, in his Q&A) took pains to outline, and any such decisions would be data-dependent. This read (and the sharpness of the market reaction) is somewhat opposed to (or willfully disregarding) the additional fact that the prior month’s NFP beat was revised considerably lower.
In reaction to having the “promise” of lower rates rug-pulled from beneath them, the gold market dropped like a very shiny, very malleable rock on Friday morning. The nadir of the steep initial slide came in just north of the key $2000/oz level, and although there have been a few excursions lower, spot prices seem to have put in decent support at the same. This most likely goes back to the point of Tuesday’s rally— had the rise as high as $2000 been driven primarily by the Fed, the markets’ reaction to Friday’s Jobs Report would have wiped that out as well.
As it stands, gold remains in the green for the week, despite a fall of more than $50/oz from the highs. Those with short-gold positions that pre-dated this week and those holding longs from mid-week that they didn’t liquidate in time can spend the weekend licking their wounds, but investors won’t be allowed too much time to digest this week’s trading alone, as we look ahead to another key inflation report— arguably one of the most important of this current Fed regime— due on Wednesday next week.
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.