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.
Ahead of Friday’s trading, gold prices appear set to close the week nearly flat to Sunday evening’s opening bids, as downward pressure applied by Fedspeak this week has erased most of the modest gains the yellow metal made after last week’s energetic rally.
So, what kind of week has it been?
Thanksgiving is just around the corner, coming next week to kick off the holiday season and the tepid markets that typify this time of year. This week, though, has felt as if the end-of-year quiet is already setting in: Without any major data points on the slate this week or market-moving events (so far), investors have sailed along mostly steadily through the major asset classes. Gold price has been no exception; even though the yellow metal has had a couple of sessions with more of a delta between open and closing prices than other assets, volatility has seldom been part of the trade.
That said, while we will anticipate the final trading weeks of 2022 to be muted as usual, there is a very important FOMC meeting due in less than a month. And the bursts of activity and changes in direction that we have seen at times this week serve as indications that the investors’ focus on what the Fed does (or doesn’t do) next is set to drive the directionally of markets until Christmas. Fed Speak, it seems, can still move numbers around the board. And, as we saw before the end of this week, gold does not offer an exception.
"The market seems to have gotten way out in front" over one CPI report, Fed Gov. Chris Waller says in Australia.
"We're going to need to see a continued run of this kind of behavior...before we really start to think about taking our foot off the brake."
— Jeanna Smialek (@jeannasmialek) November 13, 2022
On Monday, investors in equities and other risk assets pulled back from the exuberance that last week ended with, as all three major US indexes slid on the day after Fed Vice Chair Brainard took to the mic all the way from the Land Down Under to try and quell the excitement of investors and money managers who had treated last week’s CPI number as a strong indication that the Fed hit (rather than just tap) the breaks on their steep path of rate hikes, in December, and maybe even reconsider the opposition to pausing the hikes entirely. Although we saw the similar reaction we would expect in other asset classes—the US Dollar rallied from what had been one of its deepest single-day drops since 2008; US Treasury yields rebounded, too—the gold market was a clear outlier as, despite the more-hawkish rhetoric from a key Fed official and the rebound in the US Dollar, gold’s spot price held on to last week’s positive progress and closed Monday’s trading above $1770/oz.
To gold’s further benefit, last week’s post-CPI fervor replayed itself in miniature on Tuesday, when the PPI report for October—the key inflation data for wholesale prices—similarly came in cooler than expectations. Investors read it as corroboration of their consumer inflation takes from last week, and stocks moved higher again on the day, albeit with considerably more restraint than we observed at the end of last week. Gold spot, with the Dollar’s rebound stalling out a bit, maintained a steady course through the Tuesday and Wednesday sessions, though it became clear that there is currently a heavy line of resistance for gold lurking just above $1780.
This wild optimism that u-turned the marketplace last week into risk-appetite boarding on avarice seems to be a lot of flash and little support, though. In Wednesday’s trading, it only took a mopey projection of lower-than-usual holiday sales from a major retailer to send equities across the board into the red on the day. It felt anticlimactic to see the market’s momentum of the previous days be tamped down by relatively minor newsflow. Similarly, after gold made a second unconvincing attempt at climbing to $1885/oz, spot prices began a steady slide from Wednesday morning on, en route to giving up the majority of this week’s gains.
The monthly report on Retail Sales also left a dent in markets on Wednesday. This move felt more instructive. With the monthly report on Retail Sales growth on the docket this week, we had wondered: If the number was any kind of improvement over the prior—which was the consensus case—would the market interpret that more as a positive signal to investors that growth in the US economy is still healthy? Or more as a frustrating signal to the Federal Reserve that still-healthy growth means the eye-watering pace of interest rate hikes can continue for now? Midweek trading and the gloomy mood from investors (which has carried on into Thursday) after a better-than-expected Retail Sales number strongly suggest the latter.
In Thursday’s trading, we again saw how the focus on the Fed is leading to strong market reactions to key FOMC members trying to walk back the (over)reaction to last week’s promising inflation data; and this time, we saw Fedspeak put its thumb on gold’s scale as key FOMC members continued trying to walk-back the (over)reaction to last week’s promising inflation data.
St. Louis Fed President Jim Bullard: “The policy rate is not yet in a zone that may be considered sufficiently restrictive.”
His presentation says a rules based approach would suggest the rate should be somewhere above 5%, perhaps substantially so. pic.twitter.com/6R1XIXZsPm
— Nick Timiraos (@NickTimiraos) November 17, 2022
This fairly aggressive view espoused by Bullard, who is not without his followers on the committee, seemed to finally mellow out the gold market’s hot run of the last week, leading to spot prices sliding to a weekly low near $1755. It also seemed to contribute to the stock market’s rough day but was most keenly felt in climbing Treasury yields (the 10-year rate is back above +3.75% this morning.
Next week is sure to feel a little uneven. The Thanksgiving holiday on Thursday is closing things down officially on Thursday and Friday, but expect the trading flow to be thin all week. We will have a look at the discussion minutes for the November FOMC meeting on Wednesday, which will draw the market’s attention more the else coming up.
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.