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 into the future.
Gold prices are looking likely to close lower week-over-week ahead of the Labor Day pause, but the yellow metal still shows signs of strengthening support at the key level of $2500.
So, What Kind of a Week Has it Been?
The standard five-day view of the gold spot chart might give the impression of some extreme chop having been traded through the metals market in this final week of August. But a more conformed look over a longer time series (or just more attention paid to the Y-axis) reveals that the story of this week has actually been some frothy trading within a relatively limited band of $20/oz or so and not really steep moves until Friday morning. This mostly comes down to closing out the month with a very light macroeconomic data calendar and no new news from the FOMC in the afterglow of Fed Chair Jerome Powell declaring in Jackson Hole that “the time has come” for rate cuts.
The two otherwise notable points of macro data, in fact, were largely ignored by traders in the yellow metal and other asset classes, as investors remain more focused on projecting the next Fed moves, even as September seems all but certain to bring the first cut of -0.25%. The first data set to come and go with little fanfare from gold was Monday morning’s Durable Goods report— an at times valuable finger on the pulse of spending and manufacturing in the US economy— which reported an outsized rebound from a deep contraction in the June number and month-over-month acceleration nearly double the projected +5%.
At the start of the week, we were unsure if commentary from the handful of FOMC officials who had public appearances would fill the void created by the light data calendar. It certainly didn’t have much to offer in the end. Powell’s Jackson Hole address continued as the dominant messaging from the central bank, removing another potential driver for the gold market. Over the last several weeks, the market’s mind-share has evolved from Is the FOMC ready to cut? to Will the FOMC cut in September? So, what then? This is to say that we’ve circled all the way back around to uncertainty and a sort of holding pattern. The good news for gold— or at least for those who remained long-gold— is that this cycle has lifted gold to all-time highs and a chance to consolidate support at or above $2500/oz.
We are seeing a challenge of that line, however, after Friday’s PCE Price Index (the Fed’s preferred metric for overall inflation in the US economy) became the second data point to be ignored by the gold market on its release. With PCE on a monthly basis printing directly in line with projections at a +0.2% creep in July, it effectively affirms Powell’s position that inflation has begun decelerating enough to allow for a lowering of the interest rates that were elevated specifically to cool the economy and mute down on price pressures. If gold were going to move on this data, we would have looked for a shift higher (with the expectation of lowering rates) but wouldn’t have been surprised by a flat trading session either. Instead, we’re seeing the week close with strong movements elsewhere in the macro complex— particularly a surge higher in both the US Dollar Index and in US Treasury yields— which sent the yellow metal’s spot prices reeling and sinking on Friday morning. By lunchtime, gold had shed more than $15/oz and had begun testing that support at $2500.
Next week’s macro calendar looks like it will either present another spring-board for gold (and likely large parts of the US equity market as well) or more aggressive headwinds; either way, it’s very unlikely to be a stolid as most of the last five sessions: coming back from the Labor Day Holiday on Monday, we get some crucial updates on economic growth via the ISM survey data, and then the August Jobs Report on Friday morning.
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.