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, it will be not surprising to read, are trading at a deep loss at the opening marks of this week, following an extra-hot inflation report that has investors’ Fed policy projections regressing to “high and higher rate for longer,” at the expense of just about every major asset that’s not named “Greenback.”

Other than that, what kind of week has it been?

Maybe if the schedule was different for this week in September, maybe if there was a little more to do about this week’s economic data slate, there would be more than a single report and its repercussions to discuss here. Maybe. But probably not. There’s no way around talking about the smoking crater that Tuesday’s CPI inflation report left in the gold market this week, and the psyche of investors in general—and little else.

Before the shockwave hit, Monday kept a steadily positive pulse for the gold market. Spot prices for the yellow metal had risen overnight, mostly during London trading hours thanks to the strong appreciation in the EUR weighing against the Dollar; and, as opposed to last week’s patterns, gold held tight to a lot of the gains. At the same time, equities continued to climb and continued one of the sharpest multi-session climbs for the S&P 500 since the earliest days of the summer, even as US Treasury yields shifted higher. Other assets that had taken a battering in the previous weeks, as gold had—including similarly key components of the commodities basket, like crude oil—were recovering on Monday as well. (Boosted by legitimate fears of a full-blown energy crisis in the European Union, even coal prices went on a tear.) Gold spot prices peaked above $1730/oz on Monday, then settled to a calm hold just a few dollars off the top, before the hotter-than-expected-or-wanted inflation data dropped the boom.

CPI report not pretty. Headline fine (0.1% CPI for Aug or a 1.4% annual rate in that month, with prices up 8.3% over the last year).

Problem is excluding volatile food and energy and was ugly (0.6% for Aug or a 7.0% annual rate).

Broad-based relief not coming. pic.twitter.com/WVODxYmrYm

— Jason Furman (@jasonfurman) September 13, 2022

Investors and other market participants (but “investors” most importantly) looked past the more temperate view of consumer inflation year-over-year (it what has become a defining trend for 2022) and were bowled over by a month-over-month spike in core-CPI (the headline number, ex. food and energy spend,) which rose by +0.57% in August. Inflation in the services sectors of the US economy was, far and away, the primary driver of CPI coming in hotter than expected in both the “core” and overall numbers.

Little bit of a yikes: CPI m/m +0.1% vs. -0.1% est. & 0.0% prior … core +0.6% vs. +0.3% est. & +0.3% prior pic.twitter.com/8nNxnpUzC0

— Liz Ann Sonders (@LizAnnSonders) September 13, 2022

It would be impossible (and at least a little unfair) to argue that nobody in the markets reacted negatively to the risk of a higher peak of inflation pressures still to come. But when it comes to this week’s trend of “the entire investor class moving in one direction,” it’s clear that Tuesday’s crunch was driven not by “what will prices do?” but “what will the Fed do?” As expectations for the Federal Reserve to remain extremely aggressive—maybe to even find a way to act with more aggression—became the single driving theme of the trading day (and the week ahead,) the US Dollar took its biggest higher in months, cresting above 110 and US Treasury yield soared, and the 10-year benchmark yield cruised towards 3.5%. In response, gold took on of its sharpest falls in the last year of trading, with the velocity of a rock falling off a table. When the dust settled by afternoon, it was surprising to see spot prices had held so support at $1700. If it was a promising sign, it was a false promise. Meanwhile, global stocks plummeted: the S&P and Dow Jones indexes dropped by 4% or more, and every individual stock comprising the NASDAQ 100 lost ground on Tuesday. 

The U.S. stock market wiped out $1.6 trillion today pic.twitter.com/KzsFvXbMli

— Fintwit (@fintwit_news) September 13, 2022

Trading since the CPI bust has shown little indication of investors’ shifting their tone: although Wednesday’s stock market rebounded (very) softly (most indexes are down again on Thursday, suggesting that may have been a “dead cat bounce,”) the most “positive” moves gold made mid-week was to slide sideways through the European session before the start of US trading saw gold prices dragged lower and below $1700 support soon enough. The slide continued with the feel of an inexorable funeral procession; on Thursday morning, driven on by a punch of positive (above all, “US Dollar-positive”) economic numbers, Tuesday’s “we haven’t seen a morning this bad it quite some time” repeated itself, as a spike in Treasury yields ushered gold to current support at $1665 and the lowest levels in over a year of spot trading. 

Next Up

Peering ahead to next week, everything and everyone is looking towards the Fed, and next week’s FOMC meeting. Last week saw the reversal of most calls that projected Powell & Co could slow the pace of hiking to +0.50% this month; in the last three days, we now see outliers extending in the other direction, with some calls for a full-point hike before the end of the year. The middle ground appears to be predicting 75 bps repeated next week and again in November.

Accurate or not, these shifting projections are perpetuating the shockwaves from Tuesday: the US Dollar’s charge has been tempered a bit but it remains the clear front-runner this week, and the 10-year Note’s yield looks on track to break that 3.5% level when Chair Powell takes to the podium next week. In the last trading session of the week, equity traders still seem racked with concern about metrics other than inflation turning sour, and it’s difficult to imagine what (realistically) might rescue gold from its short-term slide.

The start to next week’s trading might carry with it an eerie calm, as investors and money managers sit on their hands with as much calm as possible on Monday and Tuesday in anticipation of the FOMC announcements and projections on Wednesday.   

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.