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.
So, what kind of week has it been?
Here's what you need to know:
- Gold recovered to around $4,175/oz by Friday morning after touching a weekly low near $4,080, leaving it slightly below its opening levels for the week.
- Hotter-than-expected September CPI and PPI data initially pressured the non-yielding metal as traders considered the possibility of additional interest rate hikes.
- Gold then rallied as inflation concerns weighed on stocks and the US Dollar Index softened, suggesting investors were looking beyond interest rate expectations alone.
- Next week’s lighter macro calendar will test whether this broader risk-off mood persists ahead of the following week’s FOMC decision.
So, What Kind of a Week Has It Been?
Despite a deep dip in the middle of the chart, this week feels like the first time in quite a while that gold has flexed its muscle as the market’s historical preference for safe-haven hedging against elevated inflation. A double shot of key inflation data for the US economy came in notably hotter than expected. Based on the last 12 months of trading, that is exactly the kind of news we would expect to crush the yellow metal as a non-yielding asset, given that the traditional monetary policy response would be to raise interest rates again.
And certainly, gold prices dropped sharply on Wednesday morning. But as markets more fully digested the data, the more tangible risk of painfully elevated inflation became investors’ key concern, outweighing projections of higher interest rates in the medium term. As a result, traders and managers stepped back into gold positions on Thursday and Friday and managed to push spot prices back to $4,175/oz—still a decrease for the week, but within touching distance of Sunday’s opening marks.
Hotter CPI and PPI Send Gold to a Weekly Low
Market consensus projections for this week’s inflation data were far from expecting any pullback in the recent reacceleration of consumer and manufacturing prices, but the numbers released on Wednesday and Thursday came in even higher. Core CPI came in 0.1 percentage point above expectations on a year-over-year basis, as did the headline inflation figure, which was powered by a 9.1% surge in gasoline prices in September.
More concerning for the future path of consumer inflation, September PPI, a measure of prices received by domestic producers, rose 1.3% month over month—an eye-watering 80 basis points above the consensus estimate. In the immediate reaction to the CPI print, spot gold shed nearly $100/oz, falling to a weekly low of $4,080. While there was a modest bounce off the floor, it looks as though the ugly PPI data really kicked investors’ fears into overdrive, helping fuel gold’s sharp rally back to Tuesday’s levels.
A Broader Risk-Off Shift Supports Gold’s Rebound
Our reasoning for assigning a cause to this rebound, rather than chalking it up to coincidence or end-of-week rebalancing, comes from how other asset classes traded at the same time. Following the PPI release, some combination of concern about the darkening threat of higher inflation for longer and the follow-on impact of higher borrowing rates for longer sent US stocks into a broad-based selloff that continued on Friday morning.
The concern about price pressures specifically—not only projected rate hikes—is clearly a key part of the equation here, given that the US Dollar Index softened over the same period. We would expect the dollar to strengthen further if higher rate expectations were the only critical input.
Looking Ahead
With a relatively quiet week of macro data coming up next and a live FOMC decision the following week, the big question for the immediate trading days ahead will be whether this risk-off swing across multiple asset classes persists or whether something else comes along to superficially improve investors’ mood and force gold to once again trade primarily in reaction to interest rate expectations.
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.
