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 appear set to register the fourth consecutive week of losses with Friday’s trading, and the influence that the FOMC currently has over investor sentiment in multiple asset classes was a burden on the yellow metal for most of the week. A “perfect fit” of an August Jobs Report, however, has given gold some positive momentum this morning and possibly a platform from which to consolidate new support.

So, what kind of week has it been?

While it was easy to see that last week and its dull and dreary markets were entirely focused on Fed Chair Jerome Powell’s Jackson Hole address on Friday, it’s clear that the gold market’s consistent march down and to the right this week was, somewhat surprisingly, still all about Powell’s comments last week.

What cast a pallor over financial markets this week, one that has muted some sectors’ performance, but has had a more marked negative impact on gold, was Powell’s assertion in a widely-watched address on Friday that it is likely no way around the reality that some amount of economic pain for US households and businesses will be necessary to truly tame the decades-high inflationary pressures that will be the legacy of 2022. That Powell—and in the days since, other key FOMC participants—have chosen to push this point even in the wake of a recent improvement in inflation data has certainly rattled investors and managers who were hoping that the end of the current phase of rate hikes and other tightening turns for the financial system could be coming to a sooner end.

Jackson Hole continues to send ripples through the capital markets. US equity indices poised to gap lower as they did last Monday. Bonds are dumped, and $USD rallies. Ideas of 75 bp by the ECB may be lending $eur support. https://t.co/uxeczLTjEV pic.twitter.com/BXZbdPmq98

— Marc Chandler (@marcmakingsense) August 29, 2022

If we’d had a crystal ball, or maybe just the text of Powell’s address much earlier than it was released to the public, we could probably have entirely predicted the reaction in gold and other major asset classes. While the yellow metal was sliding steadily downwards this week, spot prices fell below $1700 on Thursday for the first time in over a month, after flirting with $1800/oz as recently as July, US Treasury yields have spiked (the benchmark 10-year yield is back to flying well-above 3.1% this week) as US Dollar has again climbed to multi-decade highs against its biggest trading partners (the EUR/USD cross continues to flex above and below parity with each session.) The US stock market, similarly to gold, has been aggressively opposed by the soft-science expectations of higher interest rates, and the hard reality of the Dollar’s surge; the key equity indexes have been pressed lower all week (after getting clobbered on Friday.)

As we move out of the summer snooze and towards the September FOMC meeting—one for which there seems to be a lack of true consensus whether the central bank will announce another hike of +0.75%, or step down to +0.50%-- observant traders, investors, and analysts will try to divine how genuine this sentiment is from the Fed. After all, while it’s extending Powell & Co only the slightest benefit of the doubt to say that they aren’t actively seeking to tip US households into a recession, the same Fed officials have made no secret of the fact that the slowdown that has been a direct result of warning about necessary downside risks is not a bug, but a feature.

Neel Kashkari just said the quiet part out loud on markets' decline on Bloomberg's Odd Lots podcast: "I was actually happy to see how Chair Powell’s Jackson Hole speech was received” https://t.co/2qcBFNKO9v

— Bloomberg Economics (@economics) August 29, 2022

It would border on conspiracy theory to imply that the Fed over the last month has been less interested in telling the truth than in generating the exact market response that we’re seeing, but it sure is good timing.

Regardless of “how much” the FOMC intended all of this, the feedback loop that the Jackson Hole symposium accelerated has been the defining driver of this market week. While the charting of US stocks has looked similar to last week, with a steeper slide on Monday being followed by mostly flat trading that has still resulted in four consecutive days of loses, it has still felt surprising to see Thursday’s trading, in which objectively robust US economic data has been treated as a largely negative development, with equities slumping while Treasury yields continue to climb. At the same time, while we would of course expect gold prices to soften in reaction to positive data (which dulls investor interest in a classical haven like gold,) the yellow metal’s price drop was more severe than such a lukewarm read from mid-tier data should inspire. The reasoning, of course, is that indications of economic health in the US clear the path for the Fed’s hawkish halting of growth to continue, with interest rates (and yields) climbing and holding higher.

Bold and national climate pledges lead to greater changes, according to new research https://t.co/nnqJ0WpvYd

— Bloomberg (@business) September 2, 2022

Friday morning’s August Jobs Report also demonstrates the same influence that the FOMC’s rhetoric is having on markets, even though it’s done so with a reversal of fortune for the gold market (as well as US stocks.) With the NFP number for August coming in better than +300,000—above expectations, but still “softer” than most of the last year’s labor market reporting—and the headline unemployment rate ticking slightly higher, investors seem to be deeming this a “goldilocks number”: it is reflective of strong economic growth, hence the rally in stocks and other risk assets, but not so strong that it automatically implies more aggressive tightening from the Fed, hence the Dollar’s Friday morning pullback. As stocks are recovering for the week, gold prices are also making hay with a rebound of nearly $20/oz (at the time of writing) and recovery above $1700 with room to spare.

Next Up

Next week’s primary question will be whether the view that investors today (Friday) about the August Jobs Report and what it means for the Fed’s next steps will hold. With a trading week truncated by Monday’s Labor Day holiday in the States and little in the way of headlines or important data on the calendar, investors and traders in the gold market and elsewhere will have plenty of time to mull over the outlook for the coming months.

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.