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 and silver prices are at multi-month lows on Friday, after safe-haven assets were pummeled all week by investors’ and managers’ high-velocity surge in risk-appetites.
So, what kind of week has it been?
Optimistic Outlooks Have Driven Risk-Appetite to 2020 Highs, Gold Prices to Recent Lows
Absent any of the dam-buster headlines that we saw shoving asset prices in either direction in recent weeks, markets this week have been completely dominated by a surge in risk-appetite across economies and assets classes. As investors reach for yield and risk to match up with their recently rosier economic outlooks, traditional safe havens that performed well in the run up to the tumultuous US elections this month have seen dramatic outflows. Gold’s steep slide, which began in earnest after a much better than expected report on growing economic activity in the US and (at the time of writing) has seen the yellow metal fall to its lowest levels since July, has probably been the most dramatic; although even the mighty US Dollar’s slide persisted until the Greenback reached three-month lows before a mid-week bounce.
Gold was unable to consolidate fully after the Monday morning sell-off before the market’s risk-on exuberance— driven by vaccine developments in previous weeks signals that President-Elect Biden’s administration will be largely market-friendly—drove US equities higher again on Tuesday and this time finally broke the benchmark Dow Jones index past 30,000 points. The inverse reaction in “safety” saw gold spot prices falling to nearly $1800/oz, where analysts expected major psychological support. Because the swing in market sentiment has been based around hopeful outlooks that assume an acceleration in US economic growth across all sectors, including industrials, silver remained slightly better supported through most of this week, managing to trade above $23/oz all week before Friday’s metals collapse.
Gold prices maintained course on Wednesday, as the week’s slug of US economic data hit (to mixed reviews) and US stock markets pulled back a bit from Tuesday’s records; And the yellow metal held serve through Thursday’s US market holiday and seemed positioned to do so through the end of the week. Prices lost their grip to another surge of optimism (all likely exacerbated by post-holiday markets with very thin liquidity) as US trading re-opened for the first time since had Donald Trump made the right noises on Thursday afternoon to further diminish the threat of a constitutional crisis in the US when the Electoral College certifies Joe Biden’s election on December 14th. As US equities have been moving higher again on this half-day of trading, pre-market trading in New York saw gold shattering support at $1800/oz for the first time since July, crashing as low at $1775/oz before finding support. Silver has fallen below prior support at $23/oz, as low as $22.50.
In Friday’s US trading, gold prices have managed to claw-back roughly $15 of this morning’s loses as investors and managers tentatively step in to “cheap” hedges in the metal. With most US traders remaining on holiday through the weekend, I’m not expecting to see profit-taking (from any surviving gold shorts) bid the metal much higher before markets close for the week.
Could US Economic Data’s Mixed Signals Be Setting Up a Possible Reversal Next week?
Taking a quick look at the economic data slate from this week: although most of what we typically focus on was consolidated to a pre-holiday data-dump on Wednesday, Monday morning’s Markit PMI surprise (which we covered a bit in Monday’s weekly preview,) had a much stronger impact on markets than anything else. This may have been because of the different signals sent by Wednesday’s numbers. Durable Goods Orders painted a positive picture in surpassing expectations, but the rest of the data—particularly Initial Jobless Claims which again reported an unexpected and unwanted increase in new unemployment fillings, but also the metric for Personal Income in the US economy which contracted more deeply than expected—would give markets and investors plenty of cause for concern; Or, at least, a more introspective look at the week’s optimism. This could be setting the table to a kind of reversal next week as reality weighs back in on the outlook, particularly as it looks like we’re headed for some worrying figures in Friday’s Jobs Report.
The Fed’s week was mostly quiet, as expected. The release of the discussion minutes for November’s FOMC meeting was as vanilla as the statement and non-actions that immediately followed the conclave. The minutes do show that the committee discussed making changes in forward guidance and the monthly pace of stimulative bond purchases “soon,” which implies that we may end up with a quieter meeting than expected in December. Related to the Fed, President-Elect Biden announced this week that he will nominate former Fed Chair Janet Yellen to the post of Treasury Secretary. This has been another broadly positive signal of the incoming administration’s friendliness towards markets, and we can expect current Fed Chairman Powell to field some questions in December about how the two may work together.
December’s Jobs Report, as I mentioned, will be the biggest data point of the week coming up; We’ll also see if the more commonly cited ISM variants of PMI for the US economy match up with the strong performance indicated by this week’s Markit HIS metrics. In terms of less tangible influences on the gold market, we’ll look to see how the return of fully-traded markets after this holiday week will digest the big shifts of these last five days, as we turn the page into the final month of 2020.
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.