Happy Friday traders, and welcome to your recap of the week in metals markets. At the time of writing, gold trades just below $1285/oz in the spot markets, nearly $10 higher than the yellow metal’s start to the week.
So, what kind of week has it been?
As we head into the summer doldrums, I think it’s indicative of the routine—if not outright calm—in the gold market lately to be able to say we’re looking back at “a quiet week” even with a $10 price change. A lot of action was confined to Thursday’s trading, but otherwise it does feel like a large volume of market participants have already set their auto-pilot for the summer.
This year, I’m not sure that’s going to be the safe play that it has been in recent years. I’m not one for taking away anyone’s summer vacation, but I do think it’s worth keeping in mind that in most summers we’re not navigating the possibility of a protracted trade conflict between the world’s two largest economies—also, as a gold trader you could frame it as conflict between two of the world’s largest holders of physical gold positions—and so there’s a greater opportunity for major events in risk markets than usual. The lower activity that we see every summer, and the thinner liquidity that comes with it, creates the opportunity for larger price dislocations when a major headline breaks. As a trader of risk-off assets like gold, one would do well to at least keep an eye on the horizon during the summer.
For now, I’ll hop off of my soapbox so we can have a look at the week that was.
Gold Prices Remain Calm as Trade Dispute Heats Up
Monday’s trading, particularly in the US, was surprisingly calm for gold and several other assets. There was some choppiness in the tech stocks as the White House added more Chinese technology firms to the “Entities List”, but not enough to imply much pass-through into US Dollar or gold prices as the yellow metal traded around $1275 with a negligible down-trend. US—and global—equities would later head into Tuesday trading with a healthier stride after the announcement that the White House would allow a 90-day exception to the strenuous restrictions that Washington is threatening to levy against Huawei.
As we’ve seen often to be the case lately, the return of risk-on appetite in Tuesday’s overseas markets dealt a blow to gold prices, as the 7am EDT hour marked a sharp $5 drop in spot markets to find support at $1270/oz. That support would prove to be resilient as gold rebounded and then got an extra bit of tailwind from a badly disappointing report on Existing Home Sales figures for the month of April.
Gold’s spot market would settle towards the end of the day around the familiar. $1275-level and hew closely too it through most of the overnight session despite some signals of weakness as Asian equities struggles with Washington’s insinuation of yet more actions that might be taken against Chinese technology businesses.
FOMC Minutes Release Proves to be a Gold Non-Event
Wednesday, with the release of the discussion minutes for the Fed’s most recent (admittedly inert) FOMC meeting, was the day we were expecting to see some life in the gold and currency markets if there would be any this week. To lean on one of my favorite trading aphorisms: we weren’t wrong, just early.
Gold spot would get off to a strong start in the US session as traders and analysts digested the early-morning comments of St. Louis Fed President James Bullard, suggesting that the FOMC may have overreached a bit in raising interest rates one more time in December.
Here’s a voting Fed member who seems more inclined to cut rates than hike them, saying the December rate increase may have “slightly overdone it.” https://t.co/8o49qLmyYQ
— Lisa Abramowicz (@lisaabramowicz1) May 22, 2019
It’s important to note that Bullard was not suggesting that the time to cut rates was upon us, and that clarification is likely what kept gold from heading to the moon on the back of his comments. Instead, gold spot would lose momentum near $1277 and return to $1275/oz by the time the bell rang on US equities markets.
As my colleague Ryan Page broke down on Wednesday afternoon, the release of the FOMC meeting minutes proved to be deeply unimpactful, with the key takeaway being a confirmed commitment to patience from Jerome Powell and Company. With that, it seemed like the concrete was setting on a very tepid trading week for gold.
And then it was Thursday.
Markets Buckle Under Trade Pressure on Thursday, Spike Gold Price Towards $1290
On Thursday, a wave of stress flooded through markets as the previous days’ consistent beating on the drums of trade war couldn’t be ignored any longer. The session was strongly risk-off around the globe as equity markets sold off and oil prices had their worst day of the year so far. Conversely, gold prices ripped as positions moved into the shiny safe-haven which would net a nearly $10 pickup for the day and find a perch at $1285/oz.
Gold’s support at that level would be underlined by another poor showing for April housing data as New Home Sales saw a stronger pull-back than anticipated (although it is important to note that this was due in some part to a strong upward revision to March’s data.)
Gold Price Levels-Off on Friday, Solidifies Support at $1285/oz
Turning to today, we’ve set the excitement of Thursday aside and settled back into the calm patterns that marked the majority of this week on the gold charts. There was some selling pressure applied during the European session, but $1280 has shown itself to be a strong level of support as we close the week. Because it was, by the time we got to today, broadly expected, the announcement that British Prime Minister Theresa May will be stepping down on June 7—further fogging the path ahead for Brexit and increasing odds that the drama could extend even beyond its current October deadline—proved of little impact to the markets that we concern ourselves with as gold traders.
On the home front, Durable Goods orders for April proved to be a slight disappointment to expectations which has weakened the Dollar enough to draw gold spot back towards $1285 as we head into the long holiday weekend.
The long holiday weekend of course means a shortened economic week ahead, and even our active market days will be mostly quiet on that front, so most of our attention as gold traders next week will likely be aimed at the next moves in the US-China trade disputes. As always, we’ll be here to keep you apprised of the happenings.
Until then traders, do enjoy your Memorial Day weekends. I’ll see you back here on Tuesday for a more detailed look ahead.