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 closing this week at a moderate discount to Sunday’s opening bids. The market environment may still be, on net, a positive one for gold’s fundamentals, but spot prices were ultimately pressed lower in two strong moves this week that resulted from headlines and data that set the US Dollar on a unilateral surge.
So, what kind of week has it been?
With a light macroeconomic calendar serving as the backdrop, gold’s trading week has been book ended by headlines that sent the US Dollar surging and created a lot of bearish drag for gold prices.
The first drop in spot prices coincided with the release of October’s Retail Sales data on Tuesday morning. Despite reaching a 30-year high in year-over-year inflation in the same period, the US consumer continued spending in October; In fact, US retail spending grew its fastest since March of this year.
Although many economists and analysts remain worried that the pinch from stubbornly persistent inflation is still coming down the pipe, the dominant market reaction on Tuesday was a positive one for the US Dollar. The Greenback rose sharply against most of its major trading partners; Treasury yields also rose sharply and US equity markets would turn in mild gains for the session. (The later may have actually be in spite of a rising Dollar, and more a result of a batch of strong earnings reported by major retailers in the same day.)
Gold prices, as we would expect, fell quickly from the heights that were reclaimed last week. Having bid for prices north of $1870 earlier in the morning, spot continued dropping through most of the Tuesday cash session before finding stable support at $1850/oz going into the close. Investors flowed back into gold positions almost immediately after the global market close/re-open on Tuesday evening, attracted by the suddenly cheaper pricing for gold in an environment still overshadowed by inflation worries. During the next overnight session and into New York’s bell on Wednesday spot prices for the yellow metal returned to the $1860 neighborhood where it would remain for the mid-stretch of the week.
Sovereign debt prices rose as well following Tuesday’s drop, and a steep fall below 1.6% for the benchmark 10-year Note’s yield early Friday morning seemed to be setting the stage for another healthy day of gains on the gold chart ahead of the weekend. Friday’s headlines sent things in another direction.
By mid-day, gold had slipped a bit below $1860 but looked stable before Richard Clarida, Vice Chair of the Federal Reserve, stepped up to the mic. Making comments and answering questions as part of his participation in a virtual event with the San Francisco Fed, Clarida said that recent macroeconomic data—that is, last week’s surprising jump in CPI inflation numbers—might convince the FOMC to discuss speeding up the just-initiate taper as soon as December.
Members of the FOMC are typically indirect in a lot of their public comments, precisely because they are aware of the impact their words can have on markets that are constantly trying to work out the Feds’ policy path(s.) This comment from Clarida, while overall non-committal, is a clear signal that the taper could accelerate; and implies that rate hikes could come sooner in 2022 as well. It’s unsurprising, then, that gold’s chart rolled off the table following Clarida’s remarks.
Treasury yields jumped a bit on the headlines, but it was again the US Dollar that made the strongest move counter to gold prices, with the DXY surging again; The Dollar looks to hold most of those gains as this week’s trading book comes to a close. Gold prices eventually found support just below $1845, and have since consolidated a bit higher. All things considered, the market environment is still conducive to the yellow metal making the same kind of recovery as it did on Tuesday evening, but that’s much less of a certainty in practice because markets will remain closed over the weekend instead of going right back to trading.
The calendar for next week is truncated by the Thanksgiving holiday on Thursday in the US, but it may well squeeze a lot of trading action into fewer days: We’ll get the Fed’s PCE report on inflation for the month of October, as well as the minutes from the October FOMC meeting. Also in the mix: Reports suggest that the Biden White House will announce its decision about its selection for Fed Chair—whether it remains Jerome Powell or not—before the holiday. Hopefully by Monday morning we at least have some added clarity about when that announcement will be made, to make it easier to position around.
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.