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 wrapping up another week on the slide, having fallen, at one point, to the lowest pricing in 2 months as the dominant market narratives primarily drove the US Dollar higher.
So, what kind of week has it been?
Unfortunately for gold bulls— established and recent— the market-wide focus on US debt ceiling negotiations has, as expected, been the narrative driver of this trading week; however, the primary impact has been to boost the US Dollar higher against most other major asset classes, and the yellow metal has been among the most negatively-impacted investments. Less than promising updates from both sides of the table in Washington early in the week created a gloomy risk-off mood that gold may have benefited from as an assurance hedge, but in this case, the majority of investors and managers built up their positions in the US currency instead.
This bias toward bulking-up USD positions denied gold its historical role as both a safe haven (against the potential financial system shock created by a US default) and an asset that benefits from the implication of a low-rate environment (the thought being that the presumed recession that would come in the wake of a US default if negotiations came to naught would compel the Fed to ease pressures by cutting rates sooner than later.) Through the first half of the week, as the US Dollar and yields on US Treasury debt climbed steadily higher, gold slid far enough to nearly guarantee another week of losses before finding support (for a time) around $1955/oz. Some gold investors would have hoped that Wednesday’s FOMC minutes would paint the picture of a committee becoming more certain about pausing rate hikes for time. Instead, the discussion notes were more indicative of a split consensus, not lending surety to one projection or the other. With the US Dollar continuing to strengthen mid-week, gold was allowed precious little headroom to rise on what suggestions of future easing were present.
Macroeconomic data this week, despite a relatively bare cupboard in terms of heavily scrutinized reporting, drove unexpected tailwinds against gold prices this week as well. Just as the gold chart appeared to be re-consolidating in the mid-1950s, Thursday morning’s updated estimate of Q1 2023 GDP growth for the US economy came in stronger than expected. Reporting a QoQ uptick of +1.3% (vs. est. of +1.1%,) it isn’t a game-changing beat, but it was clearly enough to leave a mark on the yellow metal. A cursory look might suggest gold flagged at the time because of a risk-on swing in investor sentiment, but judging by how US equities still struggled to get out of the blocks on Thursday (and may have faltered altogether if not for a blockbuster performance from a single name that dragged broad sectors higher,) gold likely also suffers from the view that better-than-expected economic growth holds the door open for the Fed to continue tightening conditions— baring a default-driven recession— in an effort to quell inflation. Gold spot prices fell sharply on the GDP print and dropped to the week’s nadir below $1940/oz before rebounding moderately on Thursday night.
Some of the Thursday bounce-back on the gold chart was likely encouraged by the narrative turn in the debt ceiling negotiations, where no deal has been reached, but by Thursday afternoon, both sides had improved their signaling and at least seemed more interested in reassuring markets that a deal will be struck in time, rather than fear-mongering that their counterparties will tank the economy. Here, we would have looked for maybe a steady continuation of the climb for gold prices into the weekend. However, Friday morning’s release of the April PCE Price Index— the Fed’s preferred measure of overall inflation in the US economy— struck another blow against the shiny metal’s weekly P&L. Similar to Thursday’s GDP data, the actual number’s increase on the consensus projection is marginal, but has been enough to impact estimations of where the Fed is now and will be next month. In short order, in fact, key FOMC officials were already out on the airwaves discussing how the data set shows that the central bank has “more work to do” in battling inflation. The simplest interpretation of this is that continued rate hikes are very much still in play for now. Pre-print, gold spot prices had recovered back to $1950/oz, but the PCE numbers sent gold on a steep slight that, mid-day Friday, has the shiny rock clinging to support just above $1940.
Next week, gold looks to be less at the mercy and whim of the Washington debt ceiling narrative, although not the FOMC, as “big data” returns to the calendar, with the May Jobs Report due at the end of the 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 next week for a recap of a more data-driven week.