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 significantly lower on Friday afternoon after the yellow metal fell aggressively—alongside other safe havens that trade inversely to the US Dollar— following surprisingly hawkish remarks from the Federal Reserve Chair before a congressional hearing this week.
So, what kind of week has it been?
The most severe move in gold price this week was precipitated by Fed Chair Jerome Powell’s appearance at a scheduled congressional hearing on Tuesday morning. Testifying to the Senate Banking Committee, Powell said he considers October’s higher-than-expected consumer inflation numbers—the latest data in nearly a year of headline inflation running hotter than it has since the 2008 financial crisis—to be enough to encourage the FOMC to consider accelerating the pace of winding-down the Fed’s asset purchasing program. The completion of the taper is expected to be followed shortly by the Fed’s first interest rate hike.
The larger asset classes we monitor reacted as we would expect to such a clearly hawkish shift towards the possibility of higher interest rates arriving sooner, even if only by a few months: gold prices dropped like a rock, just as the US Dollar surged against its global competition, building a negative feedback loop for gold that drove spot price well away from previous support at $1800 to a trough in the neighborhood of $1775/oz; US equity markets are also roiled by the signal that money could be getting a little less “cheap” in the quarters ahead. Treasury yields also rallied on the initial headlines, but never quite reached escape velocity to match the Dollar.
Powell’s testimony is still far from a guarantee that the Fed will move faster on tightening monetary policy; and, indeed, the week has wrapped up with a November Jobs Report that might weaken the case that they need to step on the gas just now. But Tuesday’s hearing does raise the point that markets have not really contended with a truly hawkish Jerome Powell and the pressure that might put on stocks (and other assets like gold.) There’s sure to be a great deal of speculation by managers and traders over the ten days between now and the next FOMC meeting, as whether Powell will move father into this more aggressive posture again on December 15 and what that would do to risk appetites. For now, it’s safe to assume that a hawkish shift of any magnitude is a negative signal for gold prices in the near- to medium-term.
Buyers stepped in to build support for gold before the end of Tuesday’s session, and by midweek the Dollar’s sharp rise flattened out. Shifting fears about the severity and economic risks posed by the Covid-19 variant du jour and the potential actions governments might take to hinder its spread in the winter months injected more day-to-day volatility into global equity markets (and encouraged a decent rally in sovereign bond priced post-Powell,) gold lacked a strong tailwind to lift prices away from $1780/oz. By Thursday morning, US equity markets were leaning heavily in to a growing number of reports that the new Covid variant is being judged to (potentially) be “no deadlier” than previous strains. The overall investor mood for Thursday in the US had a strong risk-on tone and gold spot prices were pushed below $1770 for most of the day.
Battered by a week of losses, gold’s chart did not exhibit the strong risk-off rally we might have expected to follow such a big miss to the downside in Friday morning’s Non-Farm Payrolls number, which reported just 210,000 new jobs added to the US economy last month against expectations of 550k. The unresponsive gold price may be due in part to crossed signals between the disappointing NFP headline (which is calculated from surveys of US employers) and the unemployment rate (which is calculated from surveys of households and dropped significantly.) Any reaction from gold was also dulled by a strong rebound in the Dollar Index after the greenback initially plummeted on the news.
The Dollar has backed off through Friday morning as US stocks are also down on the poor NFP print, and this has given gold prices the opportunity to consolidate back around $1780/oz ahead of the weekend. Next week’s FedSpeak will garner attention as markets look for echoes of Tuesday’s hawkish Powell from other members, but also any signs that Friday’s rocky Jobs Report might give some pause. Vitally, we’ll get the updated CPI numbers (also for November) next Friday; We can expect that to be a highly scrutinized data point with high potential to make for volatile markets.
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.