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.
On the way into the start of the holiday season for markets, gold prices are, again this week, in strength. Driven by a shift in expectations for the early 2024 interest rate environment and path, the yellow metal looks likely to close the trading week with a gain of +2%.
So, what kind of week has it been?
Netting out—so far—to a healthy gain Monday to Friday, gold prices have seen a lot of up-and-down trading over the last five days. For the first time in what seems like months, most of the price action has been driven at the moment by this week’s steam of macroeconomic data rather than less-tangible theorizing about upcoming monetary policy. We’re far from free of FOMC influence, however, as the reasoning behind how investors and managers traded the data docket was based on how new numbers could steer the Federal Reserve’s next move.
First up, after the gold market began the week by holding support above $1930/oz, was Tuesday’s highly anticipated CPI report for October. In a data set that was unanimous in showing inflation continuing to cool, even more than expected, last month, the most eye-catching numbers were the one-month headline inflation print of +0.0% and the annualized “core CPI” print, which reached its lowest level (+4.0%) in two years. Over the long history of gold vs. inflation, this kind of signal would typically be bearish for gold prices, with the data declaring “inflation risk is falling.” However, financial markets, in general, went a step further: “Inflation risk is falling, so the Fed may be finished hiking.” As the US Dollar weakened and Treasury yields fell at the market open (roughly an hour post-CPI), gold prices surged following the CPI release before slowing and settling just below $1970/oz—a more than +1% gain for gold spot.
That more traditional trading signal for gold—lowering inflation outlook implying lower immediate appetite for buying gold as protection—did seem to come into play in the next trading session. The yellow metal held most of its post-CPI gains through overnight trading. When the October Producers Price Index report (reductively, CPI but for raw material/manufacturing costs) printed evidence of deflation in prices for the month, markets went aggressively risk-on for a time, to the detriment of gold. Spot prices fell sharply at first but only as low as $1960/oz. The “end of Fed hikes” sentiment clearly kept very solid support for prices not far below the Tuesday peak.
Thursday took probably the most surprising turn for the gold market after prices had rolled relatively flat overnight. Despite the focus on labor market data, as it relates to pressuring the Fed to stop cooling the US economy or else waves the hiking cycle onward, the weekly reporting of Initial Jobless Claims has rarely moved the marketplace. This week, however, it seems investors were especially keen for at least one more piece of support for the Fed to be entirely done with the current hiking cycle. And Thursday morning delivered, it would appear, with an unexpected uptick in the number of new unemployment claims. Here, the current of “the Fed can stop!” was joined and accelerated by that of “the Fed must stop (before killing the jobs market)!” and we saw a repeat of Tuesday’s trade. Sliding US Treasury yields, weakening Dollar, and a surge in gold that nearly took spot prices back to $2000/oz.
Now, a ripping rally that would drive the yellow metal to and to-and-through a major psychological price level being driven by a usually overlooked data point would be a surprising outlier; appropriately, then, we’ve seen a mild retracement as trading activity cools for the weekend. Heading into the Friday close, sports prices seem to be consolidating around the $1980 mark.
With next week thinned out by the Thanksgiving holiday in the US, this profitable week could offer a vital platform for gold to hold on to its gains in a quiet, less liquid market. We’ll have FOMC meeting minutes to contend with on Tuesday and will look to see how the table is set for gold to trade through Thanksgiving and into the final weeks of 2023.
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 next week for another market recap.