GoldPrice.

Happy Friday, traders. Welcome to our weekly wrap on the news and data that meant the most to precious metals and their correlated markets. Following last’s week’s wild volatility that ended with gold prices on the downtrend, the last five days have had their own excitement but remained much calmer in contrast; meanwhile, gold prices seem to have firmed their support may have developed a solid platform from which to move higher as we close out the first month of 2020.

Lots to recap this week! So, let’s just right in.

What kind of week has it been?

Gold Price Broke-down Further as US-Iran Tensions Cooled

When our weekly market preview went out on Monday morning, gold spot prices had shown some weakness from the outset of Sunday evening. As the trading calendar rolled over into the US trading that morning, the weakness became a sharp-ish correction lower with the yellow metal falling as low as $1550/oz at the equities market open, near the lows of the prior week. While we saw the occasional bounce of resilience, Monday’s ledger was ultimately marked by a gentle downward roll in gold prices throughout the session; the spot price for silver also fell back below $18/oz.

This was all indicative the broad, if unenthusiastic, optimism that ran through risk markets at the start of this week. War-like tensions between the US and Iran had calmed over the weekend as the attention of Tehran’s government was forced to turn inward amid several nights of domestic protests after officials admitted to “mistakenly” downing a Ukrainian passenger jet last week. Markets were also cautiously hopeful ahead of Wednesday’s signing of the “phase one” trade agreement between the US and China. Unsurprisingly, then, equity prices were higher around the globe on Monday helping to drive safe haven assets like gold lower. Adding to the feel-good factor in markets, reports emerged mid-day—and were confirmed after markets closed—that the US would be removing China from its punitive list of “currency manipulators,” likely as part of the initial trade compromise.

Finding Support, Gold Prices Moved Higher on Tuesday’s Tariffs News

In response to those confirmations, risk appetite surged and gold prices bore the brunt of the selling. While silver ounces and benchmark bond prices fell below levels of support, the price of gold dropped below $1540/oz for the first several hours of Asian markets, effectively erasing the shiny metal’s gains for the entire year to date. As European markets warmed up, traders and investors took advantage of the cheap buy-in price and in a pretty orderly fashion gold spot was lifted back to $1545/oz ahead of Tuesday’s US economic data releases. Consumer Inflation came and went, as we largely expected it would, with little impact on the markets or our outlook; both the core and headline numbers lined up with analysts’ consensus. After the usual spurt of algo-driven trades, the gold chart settled into a pretty tightly traded range, always within a few dollars of $1545/oz throughout the trading day.

Though in theory a signal of easing tensions, the effect of removing China’s negative designation also generated some of the tailwinds that kept gold prices aloft on Tuesday. For one, the announcement lead the Chinese Yuan to trade at its highest value to the Dollar in more than six months, adding to pressure on the Greenback that is usually supportive of gold value. Secondly, the market and its observers’ healthy skepticism about Washington’s pronouncements on trade seems strong as ever, with many suspicious that all the move really does is give the White House another stick to threaten China with in the future while, at the same time, watering down the effectiveness of what has in the past been an important tool for the US Treasury in global relations.

The skepticism, as it always seems to under the current administration, looked to pay off. Tuesday’s news flow and trading was fairly subdued in the US session, with the exception of mid-day reporting that the “phase one” trade agreement between the US and China, due to be signed the next day, would leave existing tariffs on Chinese goods in place until—at the earliest—after the US elections in November. Leaving aside the possibility (or, likelihood, some might say) of some level of electoral gamesmanship from the White House in this story, it mostly underlines what we already suspected about the coming negotiations on “phase two” of a US-China deal: they’re probably going to be at least as rudderless and chaotic as the last year of talks has been. With that in mind, equities fell from their highs on the news while gold rose higher; although, the yellow metal’s tight trading band for the day remained firm and $1550 appeared to be a firm level of resistance to US traders.

There was also a report on Tuesday that the Trump administration’s Department of Labor is looking to enact a plan to seriously curtail the public reporting of major economic data (the monthly jobs report, for example) generated by the government. Hopefully, this doesn’t come to pass. There’s not much else to be said about it for now, except: this would be very, very bad for markets and traders alike.

Anyway, once Asian markets had an opportunity to trade the news that tariffs would remain in place, gold and other non-Dollar safe havens moved higher, and gold pushed above resistance to trade just below $1555/oz ahead of Wednesday trading in the US.

Despite a Successful Signing, Gold Traded Higher on Market’s Skepticism of US-China Deal

On Wednesday morning, most of the market’s attention was on the scheduled trade agreement signing midday. On the gold charts, we saw some shallow selling in the early morning hours—some speculative positioning or profit-taking ahead of potential headlines—but the $1550 level continued to provide strong price support. Just after lunchtime, pen was finally put to paper.

BREAKING: The U.S. and China formally signed what they’re billing as the first phase of a broader trade pact https://t.co/OZJjfzCHR2 pic.twitter.com/9a1dxQfQlN

— Bloomberg (@business) January 15, 2020

The ceremony around the signing was the kind of length performance piece that we’ve come to expect from this administration; but, despite the pomp, the markets seemed to view the deal itself as largely unremarkable. Importantly, the agreement does take some positive steps to reign in the objectively bad-faith activities in China around FX manipulation, and IP theft. However, on its face, the deal doesn’t materially improve the fraught and fractious environment of global trade that has dragged on global growth over the last 18 months—it’s just another promise to do it that in the indeterminant future. In the afternoon trading following the signing, it was this ambiguity that experts and investors seemed unimpressed by.

While equity markets continued to rise following the ceremony, gold prices also gained from the headlines, and the afternoon’s chart was a steady rise higher and back to $1555/oz. The yellow metal continued to get a lift from the strengthening Chinese Yuan (against the Dollar,) and also enjoying some medium-term optimism for large sections of the commodities complex-- many traders expect that, if this initial (and future) trade agreements can recharge global growth in 2020, that will spur a material increase in demand for raw commodities, including gold and silver. Of course, the imprecisions we just touched on in regard to how quickly this deal might improve global trade conditions has also driven a degree of risk-off sentiment that is supportive of gold prices as well.

The phase-one trade deal with China offers the promise of more overseas sales for American farmers, but the impact of the agreement remains unclear https://t.co/fVClBmjauK

— Bloomberg Economics (@economics) January 15, 2020

Gold’s chart rode the steady support through a relatively quiet afternoon, and closed Wednesday’s book of business just above $1556.

Gold Showed Resilience above $1550 Despite Pressure from Strong Economic Data

Gold prices showed a tinge of weakness in the overnight amid Asian and European equity markets’ muted reactions to Wednesday’s formalized trade agreement but hewed close to the $1555/oz level ahead of the US session. From there, the yellow metal’s recent price gains came under pressure following a healthy-as-expected Retail Sales report (that also revised previous data slightly higher, and outperformed on the metric ex-autos,) coupled with a blowout beat from the latest Philly Fed Manufacturing Survey. Nonetheless, gold managed to find good support at $1550 again and stabilized. Similar to what we saw on Tuesday’s book of business, after the initial market open it was a very calm market in which gold prices traded a neatly tight band between $1550-54.

Gold Prices End the Week Poised for Further Upside

This far into Friday’s trading, we’ve seen both the calmer market and rising gold prices persist. The yellow metal advanced further during the Euro session in this morning’s early hours, amid an as-expected read on Euro Area inflation that still paints a concerning picture of low price-pressure. Traders on the continent may also be rotating to a slightly more risk-averse posture as the EU’s Trade Commissioner showed he won’t be shying away from confrontation with the Trump White House despite the threat of severe tariffs on a major American commerce partner.

Gold made an unsuccessful attempt the break above $1560/oz ahead of the US economic data schedule. In the wake of hitting resistance, gold prices were met by additional headwinds on reports of a December surge in Housing Starts that produced at 13-year highpoint in the data. The chart found support once more, higher this time at $1555/oz, and by mid-morning had reversed its course.

The upward trend we see in gold prices today was given another boost by December’s Industrial Production data. On Monday, we anticipated a contraction from the prior month; the actual data showed a pull-back markedly deeper than analysts were looking for and also revised prior data lower. In the hours since, gold has moved steadily higher and now trades above $1560 with confidence while silver prices have also risen back to $18/oz.  The metals’ persistent strength while risk-appetite generally remains healthy in other assets is, I admit, a little perplexing. Still, it will give us a healthy base to begin next week’s trading from, even if this afternoon brings some profit-taking trade from short-term positions as I expect it might.

Next Up

It will be constructive for gold prices to move with momentum into next week in particular, as the data calendar is unusually light and so the yellow metal and other major risk-correlated assets will remain under the influence of headlines and narrative developments around global trade and politics. As a reminder, with US bank holiday, on Monday some markets will be closed or shortened while the others will be fairly lightly traded.

For now, as always, get out there and enjoy your (hopefully long) weekend, traders. I’ll see you all back here on Monday for a preview of our next week in the markets.