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 in the future.
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Gold surged after the Fed held rates steady, notching a fresh all-time high near $5,560 before momentum flipped sharply.
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A wave of profit-taking and thinning bids above $5,500 helped trigger a fast, multi-session selloff that dragged gold down toward the $4,700s.
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The U.S. Dollar strengthened into week-end trade, adding sustained headwinds as risk appetite improved.
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Next week’s January Jobs Report and fresh political headlines (including shutdown risk) could set the tone for whether gold stabilizes or extends its pullback.
Gold prices have ridden one of the wildest rollercoasters in history this week, closely following the largest single-day gain in USD-denominated value (last week) with the steepest single-day drop (on Friday).
Despite an ugly Thursday session and an even deeper red on Friday however, the yellow metal is on track to close January’s book of business with the sixth-consecutive month-over-month increase and a gain of over +60% year-over-year.
A number of events this week have either directly influenced gold trading, or else pressed a heavy hand on the gold market by surging the US Dollar Index. These also may meaningfully change the macro and risk environment in which gold will trade for at least the remainder of Q1, so we’ll take a look at each below.
As expected, the FOMC left key policy rates unchanged on Wednesday after three consecutive cuts. Although this was anticipated to be priced-in to bullion to an extent, gold rose roughly $75/oz following the committee’s statement and Chair Powell’s press conference, topping $5170/oz towards the end of New York’s trading day, and then a further rally in the overnight sessions that put a weekly peak and an new all-time high for gold spot at $5560.
This may in part be a result of Powell highlighting that the Fed stands ready to further loosen monetary policy “when prices fall,” re-linking the next cuts to (somewhat) tangible inflation data in the coming months.
It may also have been pushed by a step further into risk-off positioning across the market, as Powell spent a considerable amount of his presser underlining the importance of central bank independence, now under threat by the current US executive.
Whatever the primary driver, reaching to-and-through $5500/oz appears to have been a pivot point for gold traders. London-based trading early Thursday morning indicated there was not a deep enough pool of new buyers at this level, and bids slipped back below $5490.
This is where a lot of speculation-interest dried up, and as New York traders logged on for the day, gold was slammed by a rush of profit-taking liquidations, and the precious metal’s spot price dipped to $5260/oz.
After a moderate rebound late in the US trading day, Asian and European desks, likely spooked by the New York drop, began to sell aggressively and pushed gold prices all the way back down to $5000.
Support held around the same line through even the opening of US markets on Friday morning, before another surge in the US Dollar pushed too strong a headwind against gold. Across Friday’s trading in New York, we have seen prices fall as far as $4740/oz.
Despite an afternoon rally back to roughly $4900, gold does not appear to have the open interest or momentum to regain $5000.
Also, applying pressure against gold, largely as it has pushed the Dollar higher, has been a long-awaited announcement of the White House’s nomination to replace Jerome Powell as head of the Federal Reserve when his term ends in May. Former Fed Governor Kevin Warsh has been tapped for the role.
This was, of the likely candidates on offer, certainly the pick least likely to worry financial markets, particularly as Warsh himself has argued for the importance of the Fed’s independence from the executive branch. The Dollar has run higher on Thursday and Friday at the same time as risk-appetite has ticked higher.
While the question of what news will hit over the weekend with markets closed is always a critical unknown these days, next week we will watch to see just how far from $5000 investors might be able to let gold fall.
While we have a bit longer to wait for new inflation data that has regained some importance with regard to projecting Fed policy and interest rates, next week will wrap with the January Jobs Report, likely another big test for the yellow metal.
There will also be the question, much earlier in the week, of whether an expected “temporary and partial” government shutdown over the weekend will spill over into the week as legislators haggle over extending government funding through the end of September.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see you back here next week for another market recap.
