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 continue to slide this week as the reality of an (as yet) unmovable Fed gets further embedded in market projections, pushing yields higher and gold (along with most USD-priced commodities) down.
So, what kind of week has it been?
Thanks to the market's near-singular focus (or, through another lens, that of the current psyche of the investor class) on the FOMC and whether they could ever be plied or bullied into slowing their pace of monetary tightening or even cutting rates, sooner than they've laid out, it's been a week of downward pressure on gold prices as the macroeconomic data flow has been unkind to the yellow metal and to those hoping for a change of tac from the Fed.
From the start of the week, we projected that there was only one possible outcome in Tuesday's CPI print that could have been positive for gold: a steeper-than-expected drop in consumer inflation for January 2023, which could argue that the Fed's fight to mute inflation was moving ahead of schedule. Otherwise, it seemed, the reaction in other assets would thwart any momentum for gold if the key CPI numbers came in either hotter-than-expected or even on target. As it turns out, January's inflation metrics delivered the former, with core inflation (6.4% vs. 6.2% exp. YoY) and the overall inflation rate (5.6% vs. 5.5%) printing above consensus. With the primary measure of inflation in the US economy implying that the overheated inflation of the early 2020s hasn't been beaten just yet (or, in the view of some, that the FOMC may need to re-accelerate their hiking curve,) yields on US Treasury paper launched a major rally, and the US Dollar strengthened. The Greenback's climb was less impressive but still meaningful, as the combination of the two became the dominant counter-factor for gold prices through the week. It was the illustration of a simple calculus: when yields/USD went higher, gold prices went lower. This trend was reiterated throughout the week, occasionally amplified by new data, like another hotter-than-hoped-for report on producer price inflation on Thursday.
Frustratingly, for gold-longs, the outperforming data this week-- a Retail Sales growth report that beat the consensus-- also landed as a win for the Fed camp. After all, if inflation still needs to be reckoned with, and if a metric like retail activity suggests the US consumer is enduring the Fed's tightening well enough, why wouldn't the central bank continue their "higher for longer" game plan? For their part, the Fed's key members themselves also furthered this narrative, using their semi-busy slate of public appearances this week to drive home the point that there is no plan to ease interest rates in 2023.
Despite all the downward pressure from a strengthening US Dollar and the 10-year US Treasury's yield putting in the best week of 2023 so far, gold has enjoyed more support than expected over the last four days. Despite falling below $1830/oz at one point on Thursday-- a $30/oz bleed is nobody's definition of a strong week-- it would have been less surprising to see the yellow metal hit a few air pockets on the way down. Instead, there have appeared to be keen investors around $1835/oz, and Friday's profit-taking has been a net positive for gold as spot prices climb back above $1840.
Next week presents another stern test, though. The only top-tier data event of the holiday-shortened week will be the release of discussion minutes for the most recent FOMC meeting. If the last few weeks of commentary for Fed officials is anything to go by, we can expect yet more information-support for the Fed continuing on with the rate-hike cycle. Any headline flow or market shocks aside, the question of whether or not the support gold demonstrated under pressure can hold the line again will be key for gold traders after the Presidents' Day holiday.
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.