Happy Friday, traders. Welcome to our weekly market wrap, where we 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 are looking for support, and the tail end of a week that has seen the argument strengthen in favor of higher interest rates remaining for longer.
So, what kind of week has it been?
Although the gold market looked steadier than expected in the first half of this holiday-shortened trading week, the same shifts in market projections that have tipped gold downward in recent weeks while lifting Treasury yields steadily higher appeared to redouble the pressure on the yellow metal in the last 36 hours.
The highlight of the macro data and news week following the Presidents Day market break was Wednesday's FOMC Meeting Minutes. Tuesday's market open for gold, which saw bid- and ask-prices crossing above $1835/oz, endured some choppy trading; and there would certainly have been some concern that—after last week's dominant trend was a slide lower for gold as investors appeared to recalibrate for the Fed to continue holding rates higher for longer all through 2023 as was their stated plan—the price of gold, and any other major asset prices against the US Dollar, could be in trouble. Gold proved more resilient, however, and when the Minutes released were as hawkish as expected, spot prices which had softened just slightly, pre-print) ultimately shed only $5/oz or so to settle near a line of support near $1825.
The details revealed in the committee's discussion minutes and notes fell largely in line with market and economist expectations: Jerome Powell and company seem hopeful about the mild-but-steady easing of inflation pressures (at the time of the February meeting) that had been observed in recent months but gave almost no thought to moving forward the end of the rate-hiking cycle in response. Importantly (but also, as-expected,) "a few" FOMC members still argued for a 50 basis point hike instead of the reduced 25bp that was announced. This messaging set the stage for gold prices to have a tougher session to end the week.
Prior to Friday morning in New York, gold had continued to maintain reasonable support between $1820-25, defying expectations that precious metals would fall more precipitously as the market re-priced the likelihood of a longer-lasting elevated rate environment by sending the US Dollar back to the 2023 highs and driving the 10-year Treasury Note's yield back towards +4%. Even in the first hours of Friday morning's pre-market trading, it may have been a safe bet that gold spot would hold serve near consolidated support into the weekend, but a surprisingly hot PCE Price Index report—the "Fed-preferred" metric for inflation in the US economy—stripped away most of the bids for gold above $1820. On both an annualized view and month-to-month, PCE inflation for January came in above expectations, which is always a shock given that the primary inputs for PCE (CPI, PPI, and others) have already been released for investor consumption. The flash reminder that 2022's eye-watering inflation may not be fully on its way out the door appears to have shaken loose most of those who were stubbornly holding to hopes that the Fed would change course and start easing soon: as the Dollar strengthens further and the Treasury yields continue their roaring 2023, gold prices have slid steadily lower to (current) support just above $1810/oz.
That the spot market has found support at least somewhat above the major psychological level of 1800—or maybe that it has found support at all over the last few weeks—could be a positive portent for gold. The yellow metal it's supported will frankly need all the positive inputs they can get in the week ahead. With the monthly Jobs Report pushed slightly later to March 10, there will be little on the docket next week that could clearly change the current market narrative of "higher rates at the cost of most everything else."
For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, we'll look forward to seeing everyone back next week.