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 may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.
Gold prices have had a strong performance all week, building from consolidated support and enjoying added interest from investors ahead of the summer months with the Fed continuing to say it expects to keep interest rate (and competing yields) pinned low despite recent increased in inflation readings.
Going into a long holiday weekend for US markets, the yellow metal is trying to build a foothold above the level of $1900/oz.
So, what kind of week has it been?
With another relatively quiet economic data slate and not a lot of headlines that moved our key markets, we’re wrapping up another week in which the majority of price action in the precious metals came mid-week before a smoothing-out of the charts ahead of the holiday weekend. The “peak of the week”—both in terms of interest and spot prices—was of course gold’s rally to-and-through the major level of $1900/oz; At this point, the yellow metal had recouped the entirety of its losses since the start of 2021.
- The earnest start of gold’s mid-week march was in the early hours of Tuesday morning, as European markets absorbed the talking points that came out of comments made by some key FOMC participants on Monday.
- In scheduled appearances Governor Brainard, Atlanta Fed President Bostic, and St. Louis Fed President Bullard all reiterated the Fed’s dovish policy outlooks and belief that the spike in price inflation currently being reported will prove to be “temporary” well before it might hinder the US economic recovery.
- While overseas equity markets rallied on the news (as the US stock markets had on Monday,) the US Dollar and Treasury yields slid especially hard early Tuesday morning.
- The repeated promises of “lower for longer” policy rates made the Greenback’s medium-term value less “attractive,” and fell to the lowest levels since January, allowing gold prices to climb higher past $1890/oz.
As the US trading session kicked into gear on Tuesday morning, the US 10-year Notes’ yield continued to fall, first below 1.6% to as lose as 1.55% by the end of the day. Precious metals happily rode the tailwind throughout the session.
- Gold prices traded steadily higher to meet the major psychological level of $1900/oz shortly after lunch. Although resistance was strong and appeared to cap the rally, in the afternoon the yellow metal held camp just below, consolidating a day of gains.
- Silver followed a similar pattern, rising to—and likewise holding a line just below—a nice round number of $28/oz.
- US stock markets ultimately slumped on Tuesday despite the weakening Dollar. The losses were fairly minimal however, with none of the key indexes falling by more than the Dow’s 0.24%.
- There has been some speculation that one added headwind for equities (and, at the same time, a lift for gold prices) may have been the deeper-than-expected drop in New Home Sales for the month of April putting some worry into the minds of investors.
- I am at least a little bit skeptical of this, as we’ve been told for weeks now to expect surging home prices (and still crimped supply chains for builders) to weigh on sales; But for the sake of diligence, it’s something I will keep an eye on at least through May’s data.
It was the strong start to Asian market trading on Tuesday night that saw gold spot prices finally move above $1900/oz with conviction. Through Asia and the first half of European trading hours, the yellow metal found a comfortable climb above $1905.
Gold prices topped for the week around $1910 while US-based traders took the wheel on Wednesday morning. As the cash-trading session began there was some weakness for the precious metals—possibly a realistic correction or possibly some profit-taking, if not a combination of the two—but the yellow metal held steady to most of Tuesday’s gains until strong mid-day selling pushed it below $1900.
- Despite losing its grip on a 19-handle, gold had reliable bidders just shy of it and easily held near $1895 through the rest of the session and, indeed, Thursday’s trading as well. This despite a rally in US Treasury yields that coincided with gold’s initial drop before later seeing the benchmark 10-year’s yield rise back above 1.6%.
- US stock markets rebounded on Wednesday, although with only roughly the same mild momentum as Tuesday’s losses. Even through some listless trading on the way into a long Memorial Day weekend, US equities look to have snapped the recent run of losing weeks.
One possible motivator for the rebound in Treasury yields and the selling pressure at gold’s zenith was more commentary from influential Fed officials, this time with a more hawkish bent.
- In separate scheduled public discussions, both Vice Chairs Clarida and Quarles signaled that they remain prepared to potentially begin talks about tapering the Fed’s behemoth asset purchasing program if the US economy continues to perform well.
- Neither FOMC member, it should be noted, seemed to suggest that they felt pressure to begin taper talks sooner to combat the current rise in inflation; But, rather, were pointing out the possible utility of the Fed laying out its taper plans well ahead of any kind of action in an effort to avoid a repeat of 2013’s “taper tantrum.”
- Still, it wasn’t terribly surprising to see the bond market react as it did to these headlines, as virtually every other comment out of the FOMC has only been in staunch support of keeping policy as-is through the end of the year.
- After next week, we move into another quiet period for the Fed ahead of the next FOMC meeting. But for the next several weeks it will be worth keeping an eye out for any other Fed officials echoing the Vice Chairs’ commentary from this week and possibly putting ripples into the Dollar and/or gold markets.
As markets tie-off for the Memorial Day weekend, US stocks are putting in another day of gains and gold prices have shown some strength in rallying from a base camp of $1895/oz to possibly set an important market by closing the week above $1900/oz.
- Closing above the key psychological level ahead of the long weekend for US markets could provide a strong platform from which gold might continue its rally through the summer months ahead if US economic performance continues to support the market’s favorite re-opening/reflation trades.
For now, traders, I hope you can get out and safely enjoy your Memorial Day weekend! After that, I’ll see everyone back here after the holiday for our preview of the week ahead.