GoldPrice.

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 into the future. 

Gold prices are capping one of the strongest weeks of 2023 for the precious metal, spurred on by three main factors. 

So, What Kind of a Week Has it Been?

In ascending order of importance and impact on the gold market, let’s first touch on the week’s meager slate of US economic data: the Retail Sales report for September and October’s Philadelphia Fed Manufacturing Index. On Tuesday morning, growth in Retail Sales came in more robust than expected, indicating a healthier performance last month from the US consumer. On net, this signal opposes any upside momentum for gold, as it implies more room for the Fed to continue hiking or, at the very least, holding rates higher for longer, as the consumer doesn’t seem to be suffering too badly under tighter conditions. This may have played into the yellow metal’s weaker performance on Monday, as prices reeled back from last week’s closing highs. The Philly Fed number came later in the week and failed to meet expectations. While not of serious concern (certainly not enough to push the FOMC into a dovish stance,) it’s a sign of forward-looking uncertainty for the US economy, as opposed to Retail Sales as a lagging indicator. The manufacturing data may have provided a tailwind to gold prices, which were already ramping considerably higher on Thursday for reasons we will cover shortly.  

Here, it’s also worth mentioning the continued gridlock within the GOP factions of the US House of Representatives, which so far has still kept the legislature’s lower chamber from electing a new speaker. The longer this drags on, the more concerning the implications for the passage of key budget measures (or lack thereof) may become. This sentiment seems to be weighing on the US Dollar, providing gold an additional leg up between the competing safe-haven assets where investors are scrambling for protection. 

For the first time, arguably, all year, the Federal Reserve’s FOMC is not the top dog when it comes to driving trading patterns in the gold market, the US Dollar market, or elsewhere. Nonetheless, its input remains key. In a flush of public appearances from key FOMC officials this week, it’s no surprise that the most prominent was Fed Chair Jerome Powell’s Thursday address to the Economic Club of New York. Gold prices had steadied at the tail on Monday’s selling, easily finding support above $1920/oz and moving steadily higher through the next trading sessions. By the time Powell took the podium mid-day on Thursday, spot prices were already back to $1950. From here, investors and traders immediately took the bit from a more dovish Powell, the thrust of whose initial remarks was that the recent surge in US Treasury yields (the 10-year Note is currently yielding just shy of +5% for the first time since 2007) and its knock-on effects (US mortgage rates have returned to 8% for the first time since the turn of the century) may be inducing enough tightening to financial conditions to subdue any immediate need for additional interest rate hikes (read: before the end of 2023.) This implication that rates may hold serve for a few more months, combined with the already strong interest in gold as a traditional safe haven, accelerated the flow of moneyed positions into gold and/or gold futures. At the close of Thursday’s trading, bids for the precious metal were well above $1960/oz and at their highest levels in nearly three months.  

(For a slightly more medium-term outlook, it is important to highlight that, through his Q&A in New York, Powell also makes a point that further economic slowing is likely needed to truly tamp down inflation. At the very least, the FOMC appears to remain firmly committed to holding rates higher for longer.)  

The third and most impactful driver of the gold market this week—the one that has spurred one of the metal’s strongest weeks of 2023 and the one that has overtaken the primacy of Fed policy in directing the current—is of course, the continuing, escalating conflict in Gaza between the nation of Israel and Hamas. The dominant theme of trading across nearly all asset classes this week has been a rush to safety amid uncertainty. And with an easing US Dollar—as a result of the geopolitical instability, of Washington gridlock, of a more dovish FOMC—gold has taken full advantage this week, particularly at the tail-end. Through Friday’s trading so far, gold prices are moving towards a gain of $200/oz since the start of the conflict in Gaza and nearly a +3% increase just this week. We have even seen some ticks for the gold spot on Friday, above the $2000 line. This appears to be a repeat of last Friday’s positioning as investors and managers look to shore up their books before markets close for two days of unknown risk-escalation. Aside from a first look at Q3 GDP data for the US economy and a re-hash of recent inflation data, the macro calendar for the upcoming week is light again, and so, again, we will expect geopolitical conflict to lead the line in gold trading as we move toward the end of October.  

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 next week for another market wrap.