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 relatively flat to where they began the trading week, as corrective impulses and a rush of profit-takers have descended on the gold chart at the end of the week following a pair of failed efforts to break above the major psychological level of $1800/oz.
In what was ultimately a dull five day stretch of trading compared to the fervor that began 2021, gold has become by all appearances a reliable participant in the momentum trades that are based in optimistic projections for a healthy recovery and booming economic growth in the US this year. What few turns we did see in financial markets this week will give us a chance to point out some of the factors that can positively or negatively impact gold’s pricing when it is tethered to such a sentiment-driven trade.
So, what kind of week has it been?
Gold prices, after an anemic start to the week for markets in general, managed to hold onto most of the strength consolidated over recent weeks and seized the opportunity to ride the re-opening/reflation trade on Wednesday as US stocks rallied. Spot prices for the yellow metal nearly reached $1800/oz during the midweek surge.
- Prices continue to benefit from the consistent support gold has enjoyed since Q1; But absent a new catalyst—probably one that spurs investors to build positions in gold specifically, rather than just a broad continuation of the re-opening trade—it’s clear there is big resistance at 1800 which will be tough to break.
- Gold’s chart ran out of upward momentum just below that major level on Wednesday. Precious metals rallied again early Friday morning as US equities also looked primed for a rebound, but gold once again found aggressive selling pressure as it approached $1800.
- This second failed attempt at grabbing an 18-handle, timed with the end of the trading week, seems to have driven a lot of profit-taking as well and sellers so far have managed to knock most of the week’s gains for gold off the table.
During a week in which bond yields lacked their recent strength and volatility—the US’ 10-year Note’s yield was held below 1.6% all week—gold’s correlation to US equity markets has persisted, especially on sharper moves.
- It was an unsteady start to the trading week in US stocks. As investors on Monday were looking ahead to a busy week of earnings reports from key players, the reality of a still-present global pandemic put a dent in the recent run of optimism.
- After handling earlier global waves of Covid-19 infections fairly well, India has set new global records for the highest number of cases reported in a single day. The country is counting more than 2,000 deaths a day.
- US stocks slumped further on Tuesday thanks to some lackluster Q1 reports from usual stalwarts like Netflix; But on Wednesday, with some slightly better earnings reported, investors seemed to turn their attention to back to the positive: All three major equity indexes snapped the two-day skid that began the week, turning in gains of roughly +1% across the board.
- This was the same return in sentiment to the hopeful re-opening/reflation trade that drove gold’s rally toward $1800 on the day.
- It’s important to point out that this resurgence in risk appetite didn’t coincide with any material improvement in the dire health data in Asia.
The Wednesday rally in equities (and precious metals) didn’t make it to a second day, however, as markets got rolled on Thursday following reports on the details of a second packaged of tax increases to be proposed next week by the Biden Administration.
- The new tax rules—which would pay for a forthcoming proposal to drastically improve benefits for the American working class like child care and paid leave-- would focus on a sharp increase in the percentage taxed on capital gains, mostly focused on those making over $1 Million/year.
- A significant change to how investments get taxed has obvious implications for financial markets, and even if those implications are tough to parse out or project in detail, the initial reaction to higher taxes is always to put a dent in the stock market.
- Stock markets dropped dramatically as the reports surfaced, and blunted gold’s rally as well. The severity of the initial reaction is a little bit surprising, given that this capital gains hike was outlined in then-Candidate Biden’s tax plan published in 2019.
- Markets have calmed since the initial headlines—the S&P 500 and the NASDAQ are both looking at strong gains during Friday’s session—perhaps because more attentive investors and money managers were already pricing Thursday’s reports into their models. Market participants are also probably realizing that there’s certain to be a long time between next week’s proposal and the actual passage of any tax increase.
- All things considered, there’s not much reason to believe that this story will be a fundamental driver for gold or the US Dollar in the near term. That said, the knee-jerk reactions we saw on Thursday has me on the lookout for a similar spasm in market prices when President Biden formally announces his plans next week.
Initial Jobless Claims dropped and held below 600K for a second week, despite most observers and participants anticipating a retracement from last week’s very strong number.
- The good news seems to have little direct impact on markets in the weekly data, but at this point we can probably expect April’s monthly jobs report to be very strong—a boost for the re-opening/reflation trade.
- And, until something shifts, it’s reasonable to believe gold prices will participate in that kind of lift as well.
Before we get to the next Jobs Report, though, we’ve got a busier week of macro data than the one we’re wrapping up today:
- The next FOMC interest rate decisions and press conference come on Wednesday. With no expectations for policy moves and no new economic projections it should be a less interesting affair than in March; But Chairman Powell will almost certainly face some questions about some rising inflation indicators and the what impact the Fed could imagine this forthcoming tax proposal from the White House having on financial market conditions.
- Speaking of inflation, we’ll get an updated on the Fed’s PCE gauge of consumer prices on Friday.
- We’ll keep an eye on whether or not weekly labor market data continues to improve; Also on Thursday is our first look at US GDP for the first quarter of 2021.
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.