GoldPrice.

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 ending another week considerably lower than where they started Monday’s trading, thanks to a historically strong US Dollar surge.

So, what kind of week has it been?

The US Dollar, and its current and projected value and spending power—which are not the same things, at least in a theoretical sense—was the defining motivator of market activity this week. More broadly: the Dollar and the (projected) machinations of its central bank. And while the Dollar’s bull run towards the highest USD Index in 25 years is boosting the possible spending power of US companies and families outside of its borders, the still very-present fears about how that spending power might weaken at home have pushed investors and managers to the back foot again out of fear of entrenched high inflation.

americans when the dollar and euro hit parity pic.twitter.com/G1N4it7q8V

— derek guy (@dieworkwear) July 11, 2022

The problem for gold, which doesn’t look to be going away anytime soon, is that the outsized Dollar strength is completely obstructing any path for gold to rise higher as a hedge against investors’ persistent inflation fears.

Gold Continues to Miss Out on Inflation-Motivated Buying

In our weekly preview piece, we discussed how Wednesday’s CPI read could be the turn that closed the tap on last week’s (admittedly odd) rush of optimism, but it didn’t take nearly that long. Stock markets fell back from the start of Monday’s trading and never looked like making a convincing recovery. The breakup that everyone saw coming between Twitter and Elon Musk left the tech sector in a dour mood that took more than 2% out of the NASDAQ on the day, but it was obvious from any attempt to take the temperature of investors and financial markets that everyone was a least a little bit nervous and unsettled ahead of the key inflation update. In the gold market, this held prices steady after last week’s fall; but, as we’ve seen time and again since the spring, any thought or discussion about inflation remaining restrictively high quickly turned to projections for more aggressive Fed intervention, driving investors to Dollar positions rather than gold. While the yellow metal’s drift lower was gentle and maybe undetectable minute-to-minute, it was certainly still happening. The headline scroll was somewhat uneventful across the wider marketplace with the news from earnings season mostly impacting individual names, but the lack of new news only allowed investors to sit with their discomfort ahead of the CPI data, and major stock markets slid for a second day, albeit with much less momentum.

All the while, the US Dollar continued to climber higher through the start of the week and showed little signs of stopping. Even before Wednesday’s reveal, it was evident that the Dollar Index was going to set up camp above 108—higher than it has sat in more than 20 years. The real magnitude of how the Fed’s aggressive hikes (those enacted and those expected) and other factors have buffed the US Dollar can be seen in the falling “price” of Euros and Yen. The latter is at multi-decade lows while the former is flirting with Dollar-parity for the first time in this millennium. (And, of course, those who look at the gold market through the lens of its theoretical value as a currency would have to admit that the Dollar is dominating that FX pair as well.)

We’re seeing one of the dominant trends of Q2 2022 reiterate and repeat, for another week running: The US Dollar is surging at the expense of virtually every other major asset category. (This week’s one exception has been US Treasuries, which have enjoyed a moderately correlated rise in prices alongside the Dollar; the US 10-year Note’s yield has fallen back below 3% as a result.) And not only gold prices, but the majority of the commodities basket continues to bear the brunt of a more expensive dollar and growing fears about inflation and other risks to global growth. WTI crude barrels are back below $100/bb and industrial-input commodities like metals slid well ahead of the inflation report. All of this looped into and amplified gold’s shift lower as the yellow metal was buffeted by headwinds from both a slumping commodities complex and the pressure heaped on by the Dollar’s surge.

CPI Goes the Whole Nine Points

*Big* headline inflation number: 9.1%
It’s more than the 8.8% economists expected.
Highest since 1981.

— Jeanna Smialek (@jeannasmialek) July 13, 2022

The 9-handle on Wednesday’s headline inflation number is about all we need to see to explain the market reaction in the trading hours since its release. For all of last week’s anticipation that this cycle’s 40-year highs in price inflation might have peaked following extra-aggressive tightening from the Fed, it appears that the actual peak was maybe just obscured by a cloud and, with even core CPI measurements coming in above projections and June’s inflation fitting a textbook definition of “broad-based,” maybe we still can’t be sure of where the top is.

Inflation continues to hit hard:

Groceries: up 12% in past year -->Biggest annual increase since 1979

Chicken: Up 19% in past year-->Biggest increase ever

Gas up 60%-->Biggest since 1981

Electricity: Up 14% -->Biggest since 2006

Rent: Up 5.8% -->Biggest since 1986

— Heather Long (@byHeatherLong) July 13, 2022

The initial reaction on Wednesday appeared to be focused on just the inflation numbers themselves: gold finally, for a moment, relish its role as the OG of inflation hedges, showing some life for the first time in weeks and climbed as high as $1740/oz during the morning hours while US stocks, of course, fell sharply. The bad inflation news was even enough to—however briefly—pull the US Dollar backward. As the trading session went on, though, the narratives shifted.

All Hail King Dollar

The strongest move, and the most predictable, was for investors to shift their focus towards what this means for the Fed’s immediate policy path: by the time traders were finishing lunch, we were already seeing some shops publish predictions that the next FOMC meeting in just two weeks’ time will conclude with the first +1% rate hike in the history of “the modern Fed.” The repercussions of this reassessment of what action the Fed might take this month and through the third quarter of 2022 played out as expected. Faced with the possibility of the most accelerated pace of interest rate hikes in history, the Dollar (which can only benefit from higher rates, for now) rose sharply again and spent most of the next 18 hours closer to 109 than 108. As an expected result, gold prices (which cannot participate in any upside to higher rates) collapsed again; since the final hours of Wednesday’s trading session, beleaguered by the Dollar trade, gold spot prices have been clinging to hopeful support just above $1700/oz, representing a fall of more than $200/oz in under a month.

Next Up

If one were looking for any kind of optimistic take on gold at the end of the week, maybe it’s that Friday morning could have been much worse. Better than expected data sets on Retail Sales for the previous month most importantly, but also regarding consumer sentiment and a key regional manufacturing gauge, are boosting stocks higher but not moving much else with conviction. It could have been the case immediately—and still may be, eventually—that investors and managers see such strong data in spite of eye-watering inflation as a signal to the Fed that the US economy can survive continued aggressive tightening actions. Maybe even more aggressive. Maybe even the first +1.0% hike by the modern Fed. Had the market taken then view—if it does in the future—it’s hard to imagine gold holding a grip on any nearby levels of support. For now, everyone seems content to glide peacefully into the weekend, and gold spot still holds steady at around $1,705/oz.

Next week’s calendar is the quietest we’ve had for a full week in a while, which admittedly exposed gold to the risk of the Dollar continuing to surge against all comers.

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.