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 in the future.
So, what kind of week has it been?
Here's what you need to know:
- Gold spent most of the holiday-shortened week moving lower and, near $4,380/oz on Friday, was on track for a third consecutive weekly loss after trading as low as roughly $4,300/oz.
- Rising expectations for a Federal Reserve rate hike drove the week's pressure, lifting Treasury yields and the US Dollar while weighing on gold.
- Hotter producer-price data and elevated energy costs reinforced the inflation story, while Friday's CPI release sparked a sharp dip-buying rally that briefly carried gold back toward $4,400/oz.
- Attention now turns to the FOMC's September 15–16 meeting, where markets expect a likely 0.25-percentage-point rate increase alongside an updated Summary of Economic Projections and dot plot.
So, What Kind of a Week Has It Been?
Gold prices spent most of this holiday-shortened week drifting lower as global markets leaned back toward an interest rate hike by the US Federal Reserve being more likely, not just this year but at next week's September meeting of the FOMC. At the time of writing on Friday, Fed funds futures implied that the odds of a September hike were fluctuating between 80% and 90%. Despite a sharp rally on Friday morning following the release of August's CPI data, at a spot price of $4,380/oz, up from a weekly low near $4,300/oz, gold was squarely aimed at a third consecutive weekly loss.
Rate-Hike Bets Pressure Gold as Yields and the Dollar Rise
Coming out of Monday's US holiday, traders and managers across several major asset classes appeared to be positioning either to account for the already resurgent odds of a September rate hike or in preparation for inflation data delivered later in the week to reinforce the same. We saw this in force in the US Treasury market, where yields continued to climb higher through the week, and in FX markets, where the Dollar strengthened. At the same time, gold spot prices slid consistently from an opening position near $4,500/oz to a low around $4,350/oz. With conflict between the US and Iran around the Strait of Hormuz deteriorating further, crude oil prices topped $95/bbl again en route to a weekly high above $100.
Rising energy costs have, of course, been core to the argument for the Fed to begin raising rates again in order to combat inflation. And while investors were primarily focused on Friday's consumer-inflation data, the Producer Price Index data for August, delivered on Thursday, accelerated the trends already in progress. Month over month, final-demand producer prices jumped 0.4% in August, following a revised 0.1% increase in July. It was this data set that appeared to trigger gold's drop to the lows of the week, where bids and offers were matched as low as $4,303/oz.
CPI Sparks a Sharp Dip-Buying Rebound
The CPI numbers released on Friday morning aligned with the same narrative. Core inflation for consumers rose 2.4% on a year-over-year basis, a 0.1-percentage-point decline from the prior month. But the overall inflation metric, which incorporates changes in the prices of food and fuel, remained at an eye-watering 3.4% year over year as signals from energy markets only indicate higher costs down the line. Curiously, this seems to have pushed several markets—most notably gold and US equities—just far enough to hit a temporary floor. Shortly following the CPI release, buyers began stepping aggressively back into gold positions in what has widely been reported as "buying the dip," pushing spot prices as high as $4,400/oz before a correction lower. Similarly, the Dow Jones surged by more than 500 points after the open, while the Nasdaq and S&P 500 were both up more than 1.00% by midday on Friday.
Looking Ahead
Once the last few hours of this week's trading wrap up, all attention turns toward Wednesday and the FOMC meeting, which is now priced at a high likelihood of delivering an interest rate hike of at least 0.25 percentage point. Whatever the decision, it will also be accompanied by the quarterly update to the Fed's Summary of Economic Projections, and any changes to the "dot plot" projecting the path of monetary policy will garner a great deal of attention.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I'll see you back here next week for another market recap.
