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 in the future.
So, what kind of week has it been?
Here's what you need to know:
- Gold has traded in a relatively mild but heavy pattern ahead of the long Memorial Day bank holiday, with spot prices holding around the $4,500/oz level that has become a key psychological line for closing prices.
- The week's softer tone was driven in large part by de-escalation headlines, including reports that Pakistan-mediated talks between U.S. and Iranian officials may be moving toward an agreement to reopen the Strait of Hormuz.
- The official installation of Kevin Warsh as Federal Reserve Chair added another headwind for gold, as his early remarks did not suggest a pivot away from the hawkish pause that defined the end of Jerome Powell's tenure.
- With Monday's holiday setting up a short trading week, markets will be focused on whether a U.S.-Iran agreement materializes and how much of gold's recent bid was tied to fears of a broader energy-supply shock.
So, What Kind of a Week Has It Been?
It's been a relatively mild week of trading for gold on the way into the long Memorial Day bank holiday, but there is also a growing sense that the longer-term bull run for the yellow metal may be waning. Spot prices have traded consistently along the $4,500/oz level, which is positioned as a major psychological level for closing prices. Although Tuesday's overnight sessions — a slide below $4,500 during Asian market hours and the London morning, then a steady buy-back above the level as U.S. markets came online — demonstrated some steady support for now, every bounce for gold prices feels a little less enthusiastic than the one before it.
De-Escalation Headlines Pull Support from Gold
Headlines look like a big driver of this softening. With reports on Thursday and Friday that Pakistan-mediated peace talks between U.S. and Iranian officials may be close to drafting an agreement to reopen the Strait of Hormuz, a de-escalation trade has taken hold in many major asset classes, including gold, which would be losing out on the underlying support of heightened geopolitical risk.
On Friday, we also saw the official installation of Kevin Warsh as the new Chair of the U.S. Federal Reserve. Given that the ceremony and Warsh's remarks, despite being held at the White House, did not include any suggestion of a pivot from the hawkish pause that now-former Chair Powell presided over in recent months, gold may be further weighed down by the diminished expectation for a hurried return to cutting interest rates.
The Warsh Fed Complicates the Rate Story
In less tangible analysis that impacted financial markets this week, gold may have found at least a moderate degree of support. With U.S. federal debt continuing to rise — roughly $39 trillion and counting — several analysts are now asking whether, for the medium term, the Warsh Fed may be even more reluctant to raise interest rates unless absolutely necessary in order to avoid heaping considerably higher borrowing costs on the U.S. government. Those costs would surely pass through to U.S. banks, then U.S. firms, and finally the U.S. consumer. So, even if gold is straining against the headwinds of high interest rates for longer, the prospect of even higher rates may be mitigated.
Of course, it is not just interest rates that have lifted the perceived opportunity cost of holding positions in the precious metal, but also the dollar. With a run of healthy, if not flashy, U.S. macroeconomic data this week, the U.S. Dollar Index is back on the rise, further resisting open interest in gold.
Looking Ahead
While it would be a challenge from the point of view of a year ago to argue that $4,500 gold is weak, analysts and traders express a real concern about what kind of air pockets the chart may find below the current level. Do buyers step back in at $4,250? Or could we see a real gap in bids all the way to $4,000?
With a short trading week ahead after Monday's Memorial Day holiday, it is clear the key point of interest for markets will be whether or not a lasting agreement between the U.S. and Iran comes to be. From there, gold markets will have to reckon with just how much of the yellow metal's recent bid has been driven by an imminent fear of the global supply chain collapsing under the weight of $200 oil.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I'll see you back here next week for another market recap.
