Good morning traders, and happy Friday. There wasn’t a great deal on the economic calendar this week, so without much to breakdown we can send everyone home early for the weekend.
So, what kind of week has it been?
One that’s played out like a soap opera in the headlines, with the act three cliffhanger arriving right on time late last night/early thing morning as the White House carried out it’s threat to increase tariffs on Chinese goods by 25% despite talks still being “ongoing.” The announcement, and this morning’s market interpretation of the latest data on US consumer price inflation has gold heading into the weekend with an upward trajectory.
US Inflation Has Something for Everyone, Ultimately Boost Gold Prices
The US Consumer Price Index inflation report for April, the one meaningful data point on a relatively quiet calendar this week, arrived this morning to the benefit of gold holders who saw prices take a small step higher. While month-to-month measurements of both headline inflation and “core” (ex. food and energy) inflation both disappointed expectations slightly, the annual change in core inflation (2.1%) matched consensus while the headline number missed but still arrived at the Fed’s 2% target.
For those of us paid to prognosticate about where asset prices like gold or the US Dollar are headed in the medium-term, this data seems intentionally targeted at being unhelpful. Any two market participants could look at this inflation report and make a convincing argument that Jerome Powell and the FOMC are right: recent drags on inflation are “transitory” and so the Fed’s pause on raising rates can continue to hold; or just as easily argue that pressures on inflation remain firm and could be growing despite Powell’s pronouncement, and that actually the Fed needs to be ready to cut interest rates again. The view that the FOMC positions is correct (and that the pause should persist,) implies flat to slightly lower price action for the gold markets—we saw this on Thursday morning, as parsing of the producer prices variant of inflation was more directly supportive of Powell’s view and as a result gold spot prices fell. Conversely, growing expectations of possible rate cut would boost gold prices as lower rates historically pairs with increased valuations for the yellow metal.
Honestly, I don’t know which of those two camps I’m in just yet. But from my perspective as a trader, it does seem as though the market this morning is running more with the latter view and what might be a slight uptick in market-priced odds of a rate cut in the next 12 months is the driver for gold spot having risen to north of $1287/oz to close the week.
Gold Prices Saw Choppy Trading All Week
While the actual delta between gold prices on Monday and gold prices this morning is relatively mild, we did see quite a bit of choppy price action through this week, mostly driven by dramatics around the ongoing US-China trade dispute. The presidents Sunday evening declaration on Twitter he would be raising tariffs on Chinese goods by weeks end was confirmed on Monday afternoon by US Trade Representative Robert Lighthizer, solidifying gold’s position above $1280/oz. Global equities (including US stock market futures) would reel overnight and see gold prices rise higher.
With the morning handoff between London and New York Traders on Tuesday morning, we saw the start an interesting pattern that persisted for most of the week, as higher overnight gold prices were sold off as US traders took the baton. I would speculate (with “speculate” in flashing neon lights) that to a degree the US market has become inured to ups and downs in this particular trade saga, and it took new tariffs actually going into effect this morning to shake everyone’s confidence in the mighty US economy—in the days prior US traders were happy to take profits by selling against higher gold prices spurred on by fear they didn’t share. To look one step down the road, I suspect that even the initial shock of the higher tariffs will fade by Monday, and we’ll see similar “sold in the morning” patterns next week.
And so we’ll head into next week with the US-China trade negotiations (or trade war, depending on your point of view today) likely to be a primary driver for US Dollar and gold markets. On the macroeconomic calendar, we’ll be taking a look at updated retail sales, as well as the start of this month’s round of data about the housing market and the US manufacturing sector.
Until then traders, enjoy your weekend and I’ll see you back here on Monday for a look at the week ahead in gold markets.