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 have made a strong rebound this week to turn in the best week-over-week performance in nearly a month.
So, What Kind of a Week Has it Been?
The gold market has made an odd and somewhat unexpected shift this week, resuming patterns of the aggressive rally that dominated March and April trading but appearing to revert to the rationalizations that were more characteristic of late 2023 than Q1 of this year. What remains constant, nonetheless, is the unquestionable reality that gold’s trading patterns are dominated by the marketplace’s anticipation of the FOMC’s monetary policy in 2024.
In recent weeks, we observed a key change in the gold market’s sentiment: 2023 saw the yellow metal driven by optimism that the Federal Reserve would make meaningful rate cuts in 2024 and, in doing so, create a healthier environment for gold prices to rise (higher interest rates, and the higher investment yields that tend to result, historically put a ceiling on gold’s upside); but since the start of this year, we’ve seen fear and uncertainty, often powerful motivators for gold buyers, take a dominant role in investor positioning as the market showed signs of real concern, with each insistence from key FOMC officials that they are in no great hurry to begin easing rates, that the Fed will wait until “too late” to cut rates and tip the US economy into recession. This risk-off impulse, with some help from flaring geopolitical conflicts, has been the clear impetus for gold’s climb to historically high prices here in Q2.
As gold climbed notably higher at the start of this week’s trading, it was already becoming a little unclear which impulse was running the show. A majority of the upswing was generated in overseas markets, having their first earnest opportunity to trade last Friday’s disappointing April Jobs Report data. But, given that the NFP miss had seen a steep backslide in the yellow metal’s spot prices in that day’s US market session were investors now pushing into gold because they saw the faltering US economic data as a motivator for the “data-dependent” FOMC to act sooner after all? Or as a signal that it’s already too late? Whatever was at the core of the market’s reasoning, it saw gold spot trade back up to a healthy range between $2310—2325/oz, which it traded for most of this otherwise uneventful week until Thursday morning.
We can see evidence of how much last week’s ugly Non-Farms number shook the market in the fact that an Initial Jobless Claims number that came in ~20K above expectations—not a dismissible increase, but still one that would normally go mostly ignored—kickstarted gold’s rally again, sending the yellow metal’s pricing back to nearly $2350 before the end of the session to put in gold’s strongest week in the last four. It wouldn’t take too much alchemy to bake this into the narrative that the market is buying into gold positions out of fear, but even a brief scan of the reporting around commodities markets on Thursday and Friday has underlined the idea that this play is based on expectations that recently soft data will, in fact, push the Fed to start cutting sooner than later. This was reemphasized on Friday, with a softer than expected “Consumer Sentiment” number (complete with higher-than-expected consumer survey inflation expectations) leading to another leg higher for gold, to the tune of $2360 or higher.
Despite the insistence, at least where investors and traders are willing to go on the record, that this pendulum has swung to an expectation that the Fed will lower rates in a timely (enough) manner, it remains unclear if this will be a lasting change. For one thing, the back end of this week has also seen multiple FOMC officials talking back against this expectation. For another, the data calendar will be a much more active driver for all markets next week, with a focus on the updated CPI report due on Wednesday.
The recent surge in gold prices indicates a continued reliance on macroeconomic indicators, particularly related to the Federal Reserve’s stance on interest rates. This suggests that market participants are closely monitoring economic data and central bank announcements to gauge the direction of gold prices in the near future. The volatility in gold prices seen this week highlights the delicate balance between market sentiment and economic fundamentals that drive price movements in the precious metal.
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.
