GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, where we 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 set to close Friday’s trading in the red for the trading week and on the third consecutive losing day. But, accounting for the current market dynamic, the solid support at $2000/oz and a decent rally on Friday show there are still cases to make for gold to move in either direction.

So, what kind of week has it been?

The gold market seems to be at a crossroads after this week of trading. Or maybe that’s just a flowery way of saying, “Nobody is quite sure about the next move.” As expected, the midweek CPI report— arguably one of the most important refreshes of US consumer inflation data in the last 12 months, following last week’s FOMC rhetoric— was the primary focus of this week’s economic calendar from the perspective of the gold market and most other major asset classes, like US equities and the Dollar. However, there’s been more trading in the following sessions than we might have anticipated for the yellow metal, and the overall trend has been sliding prices as investors try to digest this week’s CPI print into projections for FOMC action (or lack of) through to the middle of the year. 

The key points of Wednesday’s inflation report broadly met expectations. On an annualized basis, “core CPI” (overall consumer inflation, minus the more volatile categories of food and energy costs) declined marginally to +5.5%, tying out with the consensus. The overall number declined by the same 10 basis points year-over-year, slightly better than expected. This brought the headline CPI number to +4.9%, and it’s possible that the breaking below a 5-handle is having a bigger psychological impact on the markets than a 0.1% cooling would normally have. More granularly, overall inflation did heat up (to +0.4% MoM vs. +0.1%), driven primarily by “shelter” costs— rents and equivalents, i.e., housing costs. This was in line with expectations, but it’s a tinge of upward pressure that may be playing a role in the pass-through to gold prices.  Because what we’ve observed, after an initial spike higher in gold-spot following the CPI update, is a composed but consistent decline in prices even as there has been a clear weakening in the US Dollar and Treasury yields at various points since Wednesday morning. That initial spike was unexpected, at least in its height, which pushed gold spot as high as $2045/oz, but it isn’t difficult to understand the reaction function: financial media headlines around the CPI data focused on the step down in prices, however, slight, which played into projections that the Fed will “definitely” pause hiking in June and maybe likely to cut rates before the end of 2023. The lure of lower rates continues to drive short- to medium-term gold investment.  The slower stages of the market’s digestion of this week’s CPI data is where the headwinds for gold have come from. Once initial volatility cooled down, gold’s chart settled into a phase of consolidation around $2030/oz, at which we might have assumed the shiny metal would set up camp through the rest of the week. The slow-dawning realization seems to have been that this month’s inflation report fell into whatever we would call the opposite of a Goldilocks zone for gold’s outlook. The numbers show price pressures easing by just enough to be a proof-of-concept for the Fed’s crusade of hiking interest rates and the primary tool to tackle inflation but—vitally— not at a fast enough pace to really convince the committee that they can take the foot off the gas and just allow inflation to coast down to the Fed’s 2% target. This framework seems to be key to the dynamic we saw peek its head over the wall on Wednesday afternoon and then really come to the fore on Thursday. While the US Dollar continued to soften, as did Treasury yields (because the data indicates inflation is cooling enough to allow investors to envision an end to this hiking cycle,), gold spot prices nonetheless fell steadily, even sharply, at times, to a weekly low just above $2000. (For the time being, it will always be worth pointing out, as a potentially positive input for gold pricing, that support at $2,000 seems to be consolidating.) 

The market view on how the Fed will move this summer certainly hasn’t turned fully against the gold market. After all, we have a year of experience that shows just how eager investors are to be convinced that lower rate cuts are coming sooner than later. But it does seem like gold bulls will need a new dynamic to jump on if there are going to be any more aggressive rallies higher in the near term. The next contender up looks like the retread of the US government’s debt ceiling “debate,” formal discussions around which has been pushed off to next week— and will probably be the major driver of markets next week, all things considered. But we’ve already seen some gloomier headlines on the topic Friday morning tip-off risk-off sing that’s aided a rebound in gold prices, which look set to head into the weekend around $2015/oz. 
 
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 after next week.