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 markedly higher this afternoon in spot markets, wrapping what has been a decidedly volatile week for the pricing of all major asset classes, with the growing hum of uncertainty looking more and more likely to continue over the coming weeks. At the moment, that uncertainty seems to be a tailwind for the precious metals, with gold back above $1915/oz and silver once again pricing at $24 or higher.
So, what kind of week has it been?
Monday: A False Dawn to Start the Week Allows Gold Prices to Build Support Above $1900/oz
As markets stepped into an uncertain week, Monday’s questions circled around whether the US stock market would follow the lead of its global counterparts in a rally from last week’s lows and, if so, whether that trend would alleviate pressure on major commodities like gold and allow them to rally higher as well. The answer to both—however temporarily—was a strong Yes.
Gold prices continued to accelerate away from $1900 after our weekly preview went live, and the spot market reached a peak above $1915/oz just ahead of lunchtime in New York. Silver of course made some strides as well, consolidating above $24. Both precious metals ran out of pace in the afternoon trading hours with reports emerging that Donald Trump would be checking himself out of hospital that afternoon, but they held onto the majority of Monday’s gains.
Equity prices also did well on Monday, rising the most in nearly a month. Monday’s news flow was much less chaotic than things had been since Friday afternoon, and what little economic data there wasn’t able to generate much impact on financial markets. The main driver, then, of the rebound in equity markets—which offered a tailwind to gold prices as well, as investors stepped out of their US Dollar cash positions—was a resurgent hope that Friday’s acute shock of uncertainty around the health of the US president would spur the Congress to push through a new round of fiscal stimulus after all.
Many, many investors and managers decided to buy into that outlook, at least partially, pushing several major asset classes higher on Monday. It was a decision that, less than 24 hours later, would turn bad.
Tuesday: All but Cash Collapsed as the US President Announced Unilateral Termination of Stimulus Negotiations
Aside from some theatricality at the White House, Monday evening, the overnight trading sessions, and most of Tuesday morning offered precious little in the way of headlines or other market catalysts. Listless, global equities traded more or less flat, certainly with low energy, with a slight trend higher. At the same time, gold prices were given a little more room to move, with the yellow metal’s spot chart moving to weekly highs of $1920/oz during European trading. That last leg higher was enough to spur a decent run of profit-taking and rebalancing it seemed. Gold prices tumbled to $1905 following the open of US stock markets, but still anticipated support at $1900/oz after Monday’s consolidation. And then the axe fell.
On Tuesday afternoon, (somewhat surprisingly) before cash markets closed, Donald Trump publicly instructed his administration to halt all negotiations on a new round of fiscal stimulus until after the November 3rd elections. The shock and probably instability of this move was reflected in the violent drop in the US stock market.
Stocks dropped suddenly today, giving up earlier gains, after President Trump called off stimulus talks in Washington.
The Dow tumbled 1.34%.
The S&P 500 slid 1.4%.
The Nasdaq fell 1.57%. https://t.co/J5ErwtVF5x pic.twitter.com/Otx8U8Y3ad
— CNBC (@CNBC) October 6, 2020
From there, the needle dropped on a tune that we’ve become very familiar with in recent months: as equity prices collapsed, risk-averse positioning dominated the market and King Dollar dominated the flight to safety. US Treasury paper saw surging prices as well, but all other safe haven assets fell hard on Tuesday afternoon amid the market-wide grab for cash. Gold’s sharp decline easily cut through prior support at $1900, and fell as low as $1883 before market mercifully closed on the day.
Wednesday: Gold Prices Rebounded Mildly as Economic Uncertainty Surrounded US Markets
Overnight markets were generally mixed as they tried to catch up to the late Tuesday afternoon shock of Donald Trump’s announcement. During the morning hours of the European trading session gold made its last focused drive back towards $1900 before the end of the week—spurred to some extent by shuddering equity markets and growing uncertainty (again, always) around UK/EU trade negotiations, which in the shadow of American turmoil has quietly been cruising towards disaster—but the yellow metal fell after a strong rejection around $1897 in the spot markets. From there, gold prices slunk lower until bottoming out near $1880/oz just after the opening of US stock markets. Silver seemed to generally enjoy stronger support on Wednesday morning, though not a great deal of momentum. Although it looked like gold would head toward lower lows, it has appeared (so far) that the sport market hosts a large number of gold buyers at $1880.
Similar to Monday’s market trends, a rallying US stock market on Wednesday alleviated some of the heavy pressure on metals prices. Equity prices would in fact move to a multi-week high as investors and managers twisted themselves into brand new knots trying to justify a near-term outlook for the US economy that includes direly needed fiscal stimulus; gold took steps off the bottom as trading proceeded, before settling into a comfortable band just below $1890. When trying to project market action between now and November, the only thing this week’s trading really tells us is that some version of this whipsaw volatility is likely to be the norm. Whether or not persistent volatility will ultimately support gold prices as a key safe-haven alternative to the US Dollar, only time can tell us.
Looking slightly farther ahead, there were a couple of interesting developments from the release of discussion notes from the Federal Reserve’s September FOMC meeting. First, there appeared to be enough discussion to suggest that an acceleration—at the least, an adjustment—to the Fed’s asset purchasing program will be on the table in the next few meetings as the committee looks of ways further support the US economy. (Any FOMC member would be quick to point out, as they have continued to do this week, that monetary stimulus is pretty near to the end of its usefulness in this case however.) Somewhat more surprisingly, there was a moderate amount of pushback within the committee over the ultimate decision to issue such firm forward guidance about interest rates remaining ultra-low for a long while. This suggests that, in the future, there may be the will to correct that guidance in a way that would have a sharp impact on interest rates and the gold market.
Thursday: Gold Showed Signs of Recovery within a Muddy Economic Outlook
Uncertainty and volatility have held sway over markets in the back half of this week. On Thursday, investors and analysts were pushed and pulled by more disappointing labor market data on the one hand, and a stubborn refusal to accept that emergency fiscal stimulus is likely not coming to the aid of American citizens for at least a month. The morning’s Initial Jobless Claims reported a decline in the number of new job-losses, but only a moderate one. Before the most recently announced rounds of mass layoffs even roll into the high-frequency data, the four-week average for new unemployment claims remains considerably higher than its in the Great Financial Crisis.
— Yahoo Finance (@YahooFinance) October 8, 2020
During regular US trading hours, American stock markets rose to new monthly highs amid the chop created by conflicting public statements from both sides of the aisle in Washington with regards to stimulus package negotiations. Intraday investors clearly chose to hold out hope for a deal made sooner than later, and the rising equity prices lifted gold’s valuations as well as investors stepped out of their cash caves and did some buying the raw commodities space again. The yellow metal recovered from some initial selling pressure at the start of New York trading and rose steadily through the afternoon, clearly charting its course to retake $1900/oz in the sport market.
Friday: Uncertainties Appear to Have Finally Gripped Markets Tightly Enough to Drive Gold Prices Well Above $1900/oz
Sometime after US markets closed for trading on Thursday, Donald Trump publicly backtracked on his Tuesday demand for republicans to cut off stimulus negotiations. On the one hand, this obviously opens the door (even if just slightly) to a deal which the American economy, according to legions of experts, needs desperately. On the other, slightly more sober hand, this sudden reversal on a key matter will only add to increasing concerns about the stability at the top of the US government heading into Federal elections.
Overseas markets responded to this by sending equity prices immediately higher, as soon as trading began. In the same move, with the US Dollar losing ground and Treasuries selling-off, gold spot prices made a strong and sharp move to-and-through $1900/oz once again. Silver also regained $24. While today’s rally in the gold market could to some extent be attributed to alleviated pressure as investors were generally more willing buy all (non-Dollar) assets in a continuation of this week’s trend, I strong believe that the surprising velocity of gold’s rise higher today underlines that it is being bought mostly as a non-USD safe haven trade, to hedge against uncertainty about the US economy and civic stability which can only be said to have grown when looking at the last seven days as a whole.
At the time of writing, alongside rising stock markets which have followed on the trend set by Asian and European benchmarks to close the week, gold spot prices appear to be consolidating a strong position near $1920/oz. I wouldn’t be surprised to see some amount of profit-taking knock the yellow metal back a couple of steps. That said, I would also advise any active traders in the gold market to keep a keen eye on news flow this afternoon, as well as over the weekend for any new announcements or twists that could reshuffle the deck for markets once again heading into Sunday (and then Monday) evening’s market open.
With the US market week shortened by Monday’s federal bank holiday, the data slate is pretty light—an updated set of inflation numbers is the only major focus on the calendar. Of course, the three key stories of this week—the lead up to a fraught US election day, the health and stability of the sitting US president, and the American economy’s desperate need for a comprehensive stimulus deal—will continue to be the core drivers of both immediate trading and short-term outlook pricing.
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 our preview of the week ahead.