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 the future.
Despite taking a hit from the market (over)reaction to new labor market data delivered Friday morning, Gold prices still look set to close the week's trading just south of a four-month peak.
So, what kind of week has it been?
We have to say: it looked at the very start of this week as if we might return to more exciting, interesting times in the marketplace and investing space, and the start of December might be the start of some interesting market trends. It'sIt's turned out to be another return to form, however, as the primary driver of investor activity and the markets' mood is once again the immediate and medium-term outlooks for the Federal Reserve'sReserve's monetary policy. We're likely ending 2022 in the same paradigm that has dominated this year: with the focus of investors in the gold and US Dollar markets drawn inexorably toward the Fed.
A weekend of growing unrest in China had investors around the developed world in a very defensive stance as trading kicked open on Sunday evening and Monday morning (in the US.) With a wave of uncertainty rippling through markets, assets like the majority of the US stock market trended lower at the start. Investors appeared to favor safe haven trades, with US Treasuries and classics like gold lifting slightly higher on the day. Gold prices, in particular, had a strong rally in the thick of the Asian trading hours overnight; unsurprising, given how the yellow metal tends to be particularly sensitive to inflection points in China, one of the largest buyers of gold in the world.
The US Dollar was the most notable safe haven that did not get the others' boost. With investors reaching out suddenly for more stable positions-- after all, true geopolitical risk has been idling on the back-burner since the spring-- appetite for the Dollar was muted as the market stares down an FOMC meeting in two weeks time that could be the first in four that breaks from the central bank's rinse and repeat (to hike rates dramatically higher) pattern. Unsure if a "lighter" hike of just +0.50% would send enough of a dovish signal to drive the Dollar markedly lower before the end of the year, investors looking for the safest bets avoided the Greenback, which sank on the day. (With the close of business for November on Wednesday, the Dollar would turn in its steepest one-month drop in a year of trading.)
In other major asset classes on Tuesday, it was more of the same: drifts lower for US equities and the Dollar, tailwinds for Treasuries, gold, et al. As the stories of unrest in China started to fade into the background (though they, importantly, have not gone away) it was on Wednesday, with a planned appearance by Federal Reserve Chairman Jerome Powell, that full turned investors' heads towards the Fed. Powell walked a fine rhetorical line over his remarks and discussion, delivering three important messages (mostly) effectively:
1.) There are positive signs that point to inflation cooling, and the potential to pull off the "soft landing" without dumping the economy into a recession seems to be growing, but the Fed is far from being able to declare "Mission Accomplished." As such,
2.) there is virtually no appetite to seriously discuss a full-on pivot to cutting rates. However,
3.) Powell did go as far as to say that the deceleration to +0.50% may happen "as soon as December."
Within the realm of reason, there are a few different "takes" investors could come away with from Powell'sPowell's comments. As usual, they group into two camps: "Rates are staying high and tight," which is a strong negative for gold prices as it boosts the Dollar despite keeping markets concerned about serious recession risks, and "the Fed will ease financial conditions" which tends to send investors into a reverie and the Dollar into a trough-- the net impact for gold typically being s healthy tailwind. On Wednesday, the later impulse won out, and the major US equity indexes shot well into the green. All three gained more than 2% on the day; the tech and growth-heavy NASDAQ soared by well over +4%. At the same time, on the back of Dollar weakness, yields on the US 10-year Treasury note fell to nearly 3.5% while gold spot prices accelerated toward the major psychological level of $1800/oz.
Thursday's trading that followed was a reset from the midweek equity rally, as many investors are concerned about a shaky Jobs Report due on Friday. Most US stock groupings slipped to a close just slightly in the red. Elsewhere, things were little changed thanks to the Dollar'sDollar's continued weakness as the "Fed-preferred" PCE Index read on inflation came in below expectations. Gold, though, excelled as one of the strongest performers on the day, breaching $1800 before consolidating overnight.
While it looked like an out-and-out winning week for gold as the monetary outlook shaded more dovish, and the US Dollar dove towards its worst weekly performance in five months. But investors are never quite ready to shake their fear of an extra-aggressive Fed, it seems. This morning's November Jobs Report served as a clear reminder of as much. With the NFP-reported number of monthly jobs added to the US economy once again blowing the doors off of expectations, I could have been rationally interpreted as simply proof that the US economy remains resilient in spite of the constrictive rate hikes pushed thought by the FOMC to fight inflation. Once again, the investor mob's psyche is obviously interpreting it as suggesting that the Fed may lose interest in slowing the pace of rate hikes because the economy (in places) remains resilient. The result in markets is hard not to shake your head at: gold has fallen quickly back below the $1800 level as equities slip into the red, all on the back of objectively positive macroeconomic data.
This frustrating (but not unexpected) reaction to Friday'sFriday's NFP print may go on to set the tone for the next week-and-a-half of trading, as the pre-FOMC quiet period for the Fed will remove the possibility of more Fed-focused shifts before we get the December announcement itself, and the macro data calendar is otherwise pretty bare.
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.