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. 

At the close of a more volatile week than we expected for the yellow metal, gold prices look to have further consolidated the position above $2025 an ounce, with an eye toward a strong start to 2024. 

So, what kind of week has it been?

Safe to say, we've seen a few surprises in the gold market over the last five days as we get into the swing of trading (so to speak) the yellow metal in 2024. First was a mild letdown in some key macroeconomic data, followed by a resurgence of some of gold's "animal spirits," which have taken the direction of the price movement at the end of the week in opposition to the influence of Federal Reserve expectations that have exerted nearly complete control on gold since the start of last year. 

It's worth pointing out, of course, that these unexpected drivers of the gold market this week have created what looks like a relatively smooth trading pattern when viewed on a week-over-week time series rather than creating the considerable price-dislocation we might have gotten if the opposing trends didn't offset one another. While it doesn't make for an exciting book of business on the week, it does bode well for gold at the start of the year, as it allows for further consolidation of late-2023 gains. 

Following a moderate sell-off in the Asian session on Monday at the earlier hours of the European day, gold prices rebounded around the New York open and would trade relatively flat along that day's close—just north of $2030/oz—for the next two full days leading up to the new CPI report on Thursday morning. What arrived in the updated inflation numbers was a small but noted blow to the feel-good mood that recent commentary (formal and otherwise) from the Federal Reserve had engendered in the market, allowing investors to start positioning for rate cuts in 2024, perhaps as early as the March FOMC meeting. While not a signal of resurgent inflationary pressure by any means, the December CPI report noted an unexpected increase in consumer inflation year-over-year in both the headline number and in the less-volatile "Core CPI" (which strips out fuel and food costs.) There was also a monthly increase in headline inflation at a rate of +0.1% higher than in November. 

Whereas, for most of the last six months, we have seen investors and traders leap at the opportunity to make any piece of data a signal that the Fed will end the hiking cycle and turn to lower policy rates, Thursday's CPI data seemed to the shake the foundation of any expectation for the Dollar's central bankers to introduce cuts before the second half of this year. Most notable of the market reactions around gold, yields on US Treasury paper rallied aggressively on the news, while the US Dollar made some of its strongest legs higher in recent weeks. In the day's trading, gold prices would experience runs of rapid selling and would briefly dip below even $2020/oz before eventually recovering higher to this week's "home base" of $2030 shortly before market close. 

The day's trading was even more volatile than that for gold, however. It couldn't have been unnoticed that, while the yellow metal would eventually be pressed to the lows of the week by the thick of the market's reaction to mildly disappointing inflation data, on the initial print of December CPI gold spot prices shot immediately higher, and would even come within touching distance of $2055, before retracing and then rolling lower intraday—this despite a surging Dollar index at the same time. Here, it seems, traders were speculating about a potential pop in gold due to one of its earlier market functions as a hedge against inflation. The signal of higher-than-expected inflation (however marginal) appeared to have triggered the animal reflexes in the marketplace, or at least in a significant number of traders and programmed algorithms, flashing BUY signals for the yellow metal. 

While this initial lift helped to mitigate gold's potential losses on Thursday—it surely prevented a risky flirtation with support levels at $2000/oz—it also was a sign of things to come. By Thursday evening, it felt as though gold may have expended most of its potential energy for the week and would roll flat along the same $2030 level into the weekend. But news reporting Thursday night and into Friday morning brought headlines of an escalation in the tension and out-right conflict in the Middle East and, against most expectations, this has again spiked the market to trade gold on the basis of another of its most base use cases: as a hedge against market/geopolitical instability. The yellow metal moved steadily higher through the start of the European trading session, picking up speed before topping out just as New York cash markets opened, at the weakly high near $2060/oz. The influx of US traders moderated the gold rally, and it has since shifted lower (exacerbated, no doubt, by some measure of profit-taking), but as we wrap up the week, spot prices look likely to close in the neighborhood of $2045/oz. 

As we said at the top, this nets out to something that looks like a promising consolidation for gold prices as we shade into the second half of January. It does, however, raise the point that we will need to pay closer attention to the headlines outside of the FOMC and financial markets in the weeks ahead in order to anticipate potential shock that in 2024 may again become more meaningful to trading gold over the medium- to long-term horizons. 

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 another market recap.