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 other key correlated assets— and may continue to in the future.
At the end of a week in which we might have expected gold to list sideways, the yellow metal has burst past expectations again, reaching new eye-watering highs and reaching easily through the ceiling at $2700.
So, what kind of week has it been?
Over five trading days that had little to offer in terms of concrete macroeconomic data or new announcements— even headlines were (mostly) quieter than recent days— the spot price of gold made a steady and consistent climb higher that culminated in the later hours of Thursday (early Friday trading for Asian markets) in another record-breaking gain for the yellow metal as the chart broke through $2700/oz. In the hours since, prices have held well above this new psychological level and appear to be consolidating strength as we move into the back half of October.
With no clear directional signals from economic data or from Fed officials (directly,) gold’s impressive rally this week appears to have been pushed forward by less easily defined shifts in market sentiment. One is a bit more generalized while the other is more focused, but both can be defined as investors processing a degree of uncertainty about the path of assets like gold— in response to potential instability in riskier assets— through the end of 2024.
Close to home for the US Dollar and UST yield markets (the two assets that gold has traded most consistently counter to since 2020,) a more affecting sense of uncertainty about the outcome of the US Federal Election next month has taken root in the marketplace. This instability is less about hand-wringing over a specific candidate or party winning the Presidency, and more about a sense that we’re so close to the vote and still cannot predict with actionable certainty what the outcome will be or, indeed, how long it will take to reach its resolution. Investors seem to be expressing a view that the result of this uncertainty could be tumult in the US (for any period of time) that would strip their surety in USD as king of the safe havens. In that environment, gold would almost certainly be the first choice replacement.
Of course, investors as a general class would only be looking to position themselves in safe havens if they felt there might be a downturn coming from which they hope to be made safe. This is the second, more generalized sense of anxiety in markets that we think contributed to gold’s bang-up week. The recent warm and fuzzy sense that the US Federal Reserve may have pulled off the “soft landing” (or even a “no-landing”) maneuver of squeezing the economy via monetary policy in an effort to tamp down post-pandemic inflation, without tipping the US into a deep recession has been superseded in the last ten days or so. In its place is worry with a geopolitical focus about the conflicts in the Middle East and Ukraine that seem at the same time unending and metastatic, and worry with a more US-focused mind about what kind of toll the recent storms and destruction in the Southeast may take on the US labor market or economic productivity.
These narratives are unlikely to change or fade away next week. At the same time, it will be another week with very little headline macroeconomic data. “More of the same” could portend very well or ill for gold’s path towards November, the election, and the next FOMC decision. Will gold find more legs to run if investor mood remains the same? Or is two consecutive weeks of relative quiet too much to sustain new all-time highs?
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see you back here next week for another market recap.