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 are $15-20/oz lower on Friday afternoon, as investors have spent most of the week using equity markets to balance their outlook between optimism and pessimism.
The steady drumbeat of the worsening new wave of the coronavirus pandemic and increasing economic restrictions in the developed world have applies some amount of tailwind to the precious metals this week though, and developing tension between the lame fuck Treasury Department and the Federal Reserve is increasing a general sense of uncertainty in markets that may see gold investment pick back up.
So, what kind of week has it been?
Gold Prices Slid Lower This Week as Investors Focused on Equity Markets Above All Else
Understandably, markets have continued to mellow as we move past the 2020 US election cycle and towards 2021 and the start of a Biden administration. Monday morning’s newest coronavirus vaccine development headlines, this time from Moderna, initially implied that we might see the still-heightened activity from last week repeat itself; but markets appear to have learned from the experience and are getting better at pricing in the reality that, while the progress in developing multiple vaccines against the pandemic ravaging the globe is undoubtably positive, there are still a lot of steps to get right between here and a full return to “normal”—at least as far as economic activity is concerned.
Fittingly then, gold prices recovered from the initial safe haven selling on the Moderna news in pretty short order and closed Monday’s session largely unchanged around $1890/oz. Still, the trading week for precious metals has charted out to be a slow a but steady slide lower, for the most part, as the focus of money managers and investors has largely been drawn to the equity markets. Tuesday’s ugly data on retail sales weighed on investor sentiment to be sure, but Treasury paper was the only safe haven that appeared to benefit immediately as the Dollar lagged on the day alongside gold prices. The yellow metal continued slipping lower in a move that felt like a result of disinterest more than an active rebalancing, until finding support at the week’s lower band, near a spot price of $1860/oz.
With gold having finally found consistent buyers again, the markets were pushed a little farther into a risk-off footing by a concerning spike in weekly unemployment claims. From there, gold found some lift back above $1870/oz (silver has made it back above $24.25/oz) and looks like consolidating that level heading into the weekend.
The Push-Pull of Vaccine Hopes vs. Surging Infections Continued This Week, But Unexpected Conflict Between the Fed and the Executive Branch May Spell Trouble Ahead
Equity markets for their part this week have been up-and-down, but appear ultimately headed for a weekly loss despite Monday’s ripping surge higher. “Surge,” of course, is at best an inconvenient choice of words for someone not making a pun, as the worsening surge in coronavirus infections across American and worldwide has continued to push back on investors’ attempts to big the market higher on vaccine optimism. As late as Thursday morning it was unclear whether the optimist or the pessimists would carry a win for the week, but the sudden development of a power struggle between the (outgoing) leadership of the US Treasury and the Federal Reserve over stimulus money has definitely unsettled investors. Not only has this (seemingly) locked in equity index losses for the week, but may be setting the stage for tug-of-war that, while likely to take a brief pause during next week, could upset global risk markets more sharply than Covid-19 data has managed to do in months. Although brief, this morning’s surge in gold prices during public comments from Treasury Secretary Mnuchin could be an indicator of volatility to come if the spat escalates and dooms the US recovery that already looks to be hanging by a thread.
So, we’re adding one more “developing story” to our watch list of narratives likely to weigh-in on gold and US Dollar pricing through the end of the year: alongside the revived surge in Covid-19 infections, the corresponding health restrictions set to start choking off economic activity again, and the US governmental gridlock preventing much-needed stimulus and support for consumers and small businesses, we’ll now need to keep tabs on this developing disagreement between Treasury and the Fed.
With that on our plate, the schedule next week also gets a little wonky due to Thursday’s Thanksgiving holiday in the US which shortens the trading week (although, historically, active trading will be very light for the entire week in practice.) This could culminate with some increased volatility on Wednesday morning as the final full day of trading for the week will include updated economic data on inflation and Q3 growth as well as a release of FOMC meeting minutes.
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.