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 netting out to look relatively flat in Friday’s trading, following a flurry of trading activity around this morning’s labor market data at the end of what has been another healthy week for the precious metal.
So, what kind of week has it been?
With most of the marketplace focusing on Wednesday’s Fed Day and the October Jobs Report due Friday, we weren’t surprised to see gold markets looking relatively calm through the first half of the week. After a mostly flat Monday wherein spot prices traded right around the key $2000/oz level, Tuesday’s session was certainly underlined by a slide in gold under consistent downward pressure, but not even this came as a shock because of a combination of well-understood factors: until gold makes and maintains a push well above 2000, its approach to that level will always feel to some percentage of traders and money managers as “the top”; and, from that perspective, it’s reasonable that traders holding long-gold positions would have been inclined to sell those holds on Tuesday to lock-in profits for October’s month-end. Either way, the precious metal still looked sturdy when Tuesday’s markets closed with spot bids at $1980/oz.
When the much-anticipated midweek session arrived, the announcements and Q&A press conference following the close of the FOMC’s meeting were as anti-climactic for gold trading as we had expected— after all, the Fed had spent several weeks leading investors to the conclusion that there would not be another rate hike before Thanksgiving (and perhaps not before the end of 2023.) So, when the FOMC (unanimously) made that decision official, gold’s chart rode relatively steady. (To be comprehensive, it’s worth mentioning that Tuesday-overnight/Wednesday-morning trading had brought a tailwind to lift the yellow metal back to 1990/oz, but those gains had bled away by the time New York opened.) In his post-meeting presser, Fed Chair Powell performed his task of keeping the central bank non-committal— not continuing to pause on interest rate increases and not getting one more hike in before the door closes in 2023.
The data released earlier on Wednesday morning, in hindsight, may have been more interesting than the smoke and mirrors of Fed Day. The ISM Manufacturing Index metrics for October reported an unexpected contraction in the US industrial sector. This kind of signal is not necessarily the first (more) concrete warning of the American economy cracking under the pressure of the Fed’s crusade to cool inflation by aggressively raising interest rates. But it can very easily be interpreted as such by the investor class.
This whiff of unease may have contributed to the volatility we saw in gold on Friday. The October Jobs Report presented a one-month snap-shot in which the US labor market looks surprisingly unsteady. The new job number came in below target (150K vs. 180K), and last month’s door-busting number was also revised to be notably lower.) The national unemployment rate rose unexpectedly. Now, in receipt of not just a signal indicator of possible economic shakiness but multiple instances, investors and traders in and around the gold market reacted strongly. On the initial print, gold prices rocketed back to $2000/oz while the US Dollar dropped. The bond market rallied hard as well, with yields on the benchmark 10-year US Treasury Note dropping back toward +4.5%.
The outlook that was being traded here is clear: If the bill is finally coming due, and the US economy is at risk of contracting as a result of the higher interest rate environment and its tighter financial conditions, the FOMC may be pressured to rush through the end of the hiking cycle and get to cutting rates sooner than they’ve signaled. While not out of the question, this bet began losing steam quickly as cash markets opened for equities trading in New York: the S&P 500 and the NASDAQ are both in the green by more than +1% today, while the Dow Jones Industrial looks positioned to turn in it’s strongest week of the year. Not exactly a picture of doom and gloom that would impel the Fed to act. (Pseudo-paradoxically, some of the rally in stocks may, in fact, be on the “Fed must cut” sentiment.) As the vim and vigor of the pre-market gold rally have waned, gold spot prices have slipped but remained healthy. Barring a sharp adjustment in the afternoon, prices are consolidating support once again above $1990/oz, which should provide a decent platform for the yellow metal to move on next week.
That will be helpful and perhaps crucial, as next week, gold and other risk-sensitive assets will be once again at the mercy of headline flow and FedSpeak rather than macro data inputs. The data calendar is mostly barren, with Consumer Sentiment and perhaps the weekly Jobless Claims numbers holding the highest importance.
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.