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. 

Despite weakening in the first half of Friday's trading, gold prices look set to close the first week of Q4 with a healthy gain and positive momentum overall, with spot prices looking to consolidate above the $1700/oz level.

So, what kind of week has it been? 

Right off the bat, Q4 of 2022 is jumping out to a distinctly different flavor from much of the year that has come before. Since the open on Monday morning, investors across US stock markets, Treasury bonds, and major commodities groupings have traded in the antithesis to a mood of gloom and fear that dominated markets in recent weeks. US Stocks have moved up and up this week: all three indexes rose by over +2% on Monday and picked up another +3% or more on Tuesday before flattening out in the hours since; Treasury bond prices have recovered as well. Most meaningfully, the Dollar's stifling heater has cooled, with the USD Index easing to (a still red-hot) 112.  

Gold prices also had their Monday (and Tuesday) in the sun. With the Dollar sliding off its lofty perch, spot prices for gold tore higher in the first US trading hours of the week. The yellow metal cruised back to $1700/oz and seemed to make fairly easy work of topping the round number, even if momentum slowed a bit after cresting the hill. In the overnight session, gold consolidated gains, and the start of US trading on Tuesday replayed the Monday rally, reaching a high point for the week in the neighborhood of $1720/oz.  

To at least some degree, gold's early-week run was aided by a similar surge in crude oil prices on the back of (heavily bemoaned) OPEC+ production cuts. Still, the larger rally in several assets (including gold) has all been driven by a reinvigoration of investor optimism that supported asset prices through the first quarter of the year. In a lot of ways, it's a refreshing change of pace. Still, it brings to the fore two concepts (and potential pain-points) that shouldn't get lost in all the positivity: a feedback loop that seems to have little external, rational support (if any,) and question whether the ingrained "Fed reaction" functions that have dictated so much of market movement in 2022 might get turned on its head as early as next week-- or may already have done.  

Let's start with the seemingly ephemeral feedback loop. Seeing as how the FOMC didn't come out Monday morning with an emergency statement to the effect that they will be sharply reversing course on their crusade to tighten financial conditions to suffocate inflation, the only real basis for the sharp rally in equity market optimism was investor assumption that growth expectations and risk appetite in global stocks had turned so sour in recent weeks that the Fed will feel compelled to tap the brakes on their pace of tightening.  

Taking a second look at that: "the market" (investors) feels that outlook for economic growth has become so dim as a result of the Fed tightening aggressively and so far maintaining a very hawkish posture when reiterating that it plans to carry on doing so, that the central bank will sooner-than-later be compelled to ease their pace of tightening (if not ease rates themselves) in order to rebalance the ship. And so, for the first couple of trading sessions this week, investors have expressed this new optimism by swiftly turning markets around-- and, in doing so, relieving the same pressure they are counting on to move the Fed. 

Through this lens, this initial Q4 rally looks rickety at best. And, although Wednesday and Thursday saw markets trading sideways more than they corrected downward, it appears a lot of this renewed risk appetite has failed to survive even past the September Jobs Report. There will be more concerns when we get new CPI data next week. 

This brings us to the second question: Are the core investors of equity markets and other risk instruments now rooting for bad economic data? It stands to reason that if a cornerstone of the "new" projection of a more dovish Fed in the near term is pressure being put on the FOMC by a slumping, less-stable US economy, then investors will want that input to be driven by something more concrete than just "investor sentiment" (for reasons we've just discussed.) Bad beats on key economic reports-- like, say, the September inflation data--then could be considered more supportive of the case that the Fed will have to slow down; therefore, in this kind of projection, it would be indicative of better conditions for not only risk assets like stock but gold as well. 

Next Up 

Trading on Friday seems to be proving that the answer is "yes." While not massive outperformance, the September Jobs Report released today is objectively positive news for the US labor market, which has apparently continued to move from strength to strength; the response has been another moderate surge in the Dollar and climbing Treasury yields-- all things we would expect (traditionally) to see as an adverse reaction to bad data. Investors do seem to be processing it, more than anything else, as wave-ahead for the FOMC to continue constricting financial conditions. 

So, if next week's CPI report brings to market more signs of still-eye-watering inflation, will the S&P surge while the Dollar gives back even more of its Q3 gains? If the data instead shows that price inflation is really easing, will equities fall back into their September spiral? Either way, it will set the tone and, vitally, help us set expectations for how financial markets will take in key economic data points and rhetoric from FOMC officials through the end of 2023. 

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.