Happy Friday, traders. Welcome to your recap of the week in precious metals markets.
Gold prices are markedly lower this afternoon, as the most recent wave of risk-off headlines seem to have come too late to rescue the yellow metal from what has been a strong week for the US Dollar.
So, what kind of week has it been?
Gold Rallies to $1530+ and Odd of Trade Agreement Fall, Impeachment Hearings Announced
From around the time our weekly preview post went up on Monday, until the start of business and the equity market open in the US for Tuesday, gold spot prices traded steadily alongside the $1520 level provided by Monday morning’s strong stream of buying. Silver trading was more volatile over that period, reaching as high as $18.70/oz in the spot markets Monday evening. There was a brief dive in the prices of both metals (and other safe-haven assets) prior to the US markets’ cash open, probably influenced to some degree by repositioning around the news that the UK’s Supreme Court had somewhat unexpectedly ruled the Prime Minister’s suspension of Parliament unlawful and ordered the House of Commons back to work. The bid returned to risk-off positions once US traders took control of the market however, as investors were starting to become more nervous about the developing uncertainty surrounding Donald Trump’s dealings with a foreign government which was exerting new pressure on congressional Democrats to open impeachment proceedings.
While the strong support for metals prices persisted on Tuesday morning, risk assets were initially up as well with all major US indices in the green early on. It was a bit of an odd trading pattern, but it wouldn’t last long enough to need an explanation:
— Bloomberg (@business) September 24, 2019
Throughout the morning, as US equities and Treasury yields turned sharply lower, gold prices climbed steadily higher to levels just below $1535/oz in the spot market. The US President was once again the driver for this market move as Donald Trump’s address to the UN General Assembly on Tuesday morning, which was characterized primarily by barbs thrown at Beijing, sapped investors of their appetite for risk. The week had begun with another raft of positive headlines ahead of the US and China’s important face-to-face meetings scheduled for next month; even so, from the market’s point of view the President did a great deal of damage to hope for an improvement to trade conditions coming sooner than later.
Also adding to the risk-off mood of the markets was the rising volume of calls for formal impeachment proceedings to be initiated by the US House. Interestingly, by the time the formal announcement was made by Speaker Nancy Pelosi on Tuesday afternoon, the gold market seemed satisfied that this turn of events was fully priced-in at its $1530 range and the yellow metal would continue to trade at that level through Asian trading and the start of the European session.
Gold’s Weekly Gains were Erased Wednesday as Equities Get Fooled Again
So, now we have to talk about Wednesday’s trading session. Equity markets have never been a specialty of mine, to be sure, so take my analysis and criticism of them with a nicely sized grain of salt. With that said, it sure looks like US stocks ripped higher—and would go on to finish all green for Wednesday’s book of business—solely because of this:
— Bloomberg Economics (@economics) September 25, 2019
I hope you’ll allow me a brief rant here. As proponent of behavioral economics, I consistently back the argument that any analysis or modeling of the economy has to account for the market’s potential to be irrational because it’s made up of human people who are themselves irrational. I don’t think I can point to many examples of this point that work better than do the last few months, in which US equity markets seem to consistently forget just how badly they’ve been whip-sawed in the very recent past by simply taking the White House’s word that trade relations with China are improving, only to have those happy rallies snapped once the opposite is prove to be true, either by responses from the Chinese delegation or by the President’s twitter account and his apparent need to torpedo his own claims. Honestly, the headlines should just look like this:
— StockCats (@StockCats) September 25, 2019
Okay, I think I feel better. For now. Let’s move on.
In the precious metals, this risk-on rally was reflected in cratering spot prices. Silver prices broke below the $18/oz level which it was so far failed to recover; gold prices collapsed throughout the morning and by lunchtime Wednesday were clinging to support at $1505/oz, entirely wiping out the gains from earlier in the week and threatening to break the summer’s upward trendline. On Thursday, US stocks turned negative and it became clear that the battle around a possible impeachment of Donald Trump will be an ugly one, and probably protracted. Metals prices, however, were pretty lifeless: the yellow metal languished in a $1505-10 range for the trading day, while silver never looked likely to move back above $18/oz.
Gold Falls Below $1500 as US Dollar Marks a 2-year High
The weight of that inertia was clearly putting pressure on gold in these (presumably) late stages of its summer rally. While Asian markets supported prices at these low levels, support broke hard during the European Friday session. The double hit of practically subterranean odds of a clean Brexit agreement (much less its execution) ahead of the current Halloween deadline, and a six-year low in economic confidence in Europe smashed the value of the British Pound and sent the Euro lower, helping to boost the US Dollar to two-year high. Gold’s already battered resolve weakened along with comparable safe-haven assets, and spot prices pushed well below $1500/oz before seeming to find support near $1490.
If there’s anything with an optimistic tilt to take from the way gold’s traded over the last few days, I would say it came with this morning’s release of the only really meaningful macroeconomic data for the week: PCE inflation data delivered a strong read as expected, and the Durable Goods numbers actually outperformed expectations. This push of Dollar-positive data arrived just when gold prices were flattened against $1490 and, while the chart did briefly dip into the $1480s, the yellow metal seemed to be well supported by buyers at that level.
We haven’t seen a retest of those lows so far today, as stocks are falling again on more negative news on the US-China trade front. (Should I just repost the donkey with a carrot picture again?)
MORE: Markets fall after Trump administration officials say they're considering limits on U.S. Investor portfolio flows into China.
— Bloomberg (@business) September 27, 2019
Gold prices have found some life as the pendulum swings back to risk-off to close the week, but after a brief run above $1500/oz spot prices are once again in the range of $1498 where it looks like things will settle heading into days end.
With so much of the market’s immediate attention this week being dominated by the White House and the dark clouds gathering around it, we’re going to have some things to catch up on next week. We’ll have another round of FedSpeak to examine and, given time to digest what we heard this week, start to form some market expectations for the next FOMC meeting; we’ve seen that the drama of Brexit is once again getting messy enough to effect major risk-sensitive assets like gold, and stateside we’ll wrap up the week with the September jobs report. Of course, with the US-China trade war’s odds of improvement having taken several (more) steps backwards and impeachment hearings possibly beginning as early as next week, we still can’t take our eyes off of the tweets and turmoil emanating from 1600 Pennsylvania Ave.
But those are worries for another day, traders—well, for Monday at least. Get away from the charts and enjoy your weekends, and I’ll see everybody back here next week for a look at the macroeconomic calendar.