GoldPrice.

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 markets have had a much calmer 4-5 day run than what we’ve seen from Spring 2022 so far, although the market is closing out the week with a bang, having put in a strong rally towards $1945 at the start of the day. There was no clear driver for the sudden move in metals, but it can be safe to assume this may have been a rush to safer positions ahead of the weekend close, on the back of some more concerning news out of the Russian invasion of Ukraine.

The initial rally faded somewhat as the session progressed and US equities began turning in a positive run; but over all this looks to be another feather in gold’s cap as the yellow metal remains supported by those looking for protection against inflation pressures, despite the approach of a higher (and higher still) interest rate marketplace in the months ahead.

So, what kind of week has it been?

On Tuesday, Federal Reserve Governor Lael Brainard spoke. While throughout her remarks she emphasized that inflation sustained at current levels pose a major risk the US economy, Governor Brainard joined the chorus of Fed officials publicly acknowledging the possibility of 50-basis-point rate hikes. She also suggested that the Fed could begin aggressively reducing its balance sheet—reinflated by pandemic-era crisis fighting—as soon as next month, much sooner than many observers expected this other sweep of “quantitative tightening” to begin.

Aside from the points about timing of the Fed’s balance sheet unwind, the sharp reaction in US markets was less about the connect to the comments than about who it was making them.

A Brainard speech that begins with a Volcker quote.
Feels like there is a big message in that. https://t.co/HKDZXUxZMn

— Jon Turek (@jturek18) April 5, 2022

Fed watchers and investors have long marked Brainard as one of the most dovish members of the FOMC. To have her bearing the standard of potentially the most aggressive Fed policy path in decades, while quoting former Fed Chief Paul Volcker, is a pivot that was keenly felt across markets on Tuesday as an indicator of just how concerned today’s FOMC has become with the current level of persistent inflation: US stocks tumbled before the close, and US Treasuries, meanwhile, slid into what pundits were willing to call a “meltdown,” pushing the yield on the 10-year note well above 2.6%.

Gold prices had an interesting reaction to Brainard’s comments, and its most energetic, volatile trading of the week: Spot prices appeared to rip as high as $1943/oz immediately after the text of Brainard’s speech was released—presumably on a boost of risk-off inflation fears— but was unable to find stable interest at those higher levels before getting dragged back downwards by the pursuant collapse in bond prices (and proportional surge in yields.) Even still, the yellow metal only shed roughly $10/oz in the market tumult that followed the Fed Governor’s remarks, and this set the tone for the rest of the week in which gold’s resilience (or the level of investors’ worry about hot and hotter inflation, depending on your lens) seemed to over-power the signs of quickly rising interest rates that typically create strong winds of resistance against gold.

Since gold’s chart gained a good purchase above $1920 thanks to consolidated support that stepped in mid-day Tuesday, spot prices traded most of the week (until Friday morning’s rushing rally, that is) in a comfortable band between support and $1930/oz, even through the release of the FOMC’s discussion minutes for March’s meeting, which investors appeared to wake up dreading on Wednesday, after Governor Brainard.

Wooh these are some minutes.

- "Many" officials wanted 50 bps in March
- Foreshadowed 50 bps at "future meetings"
- "Generally agreed" on $60B Treasury, $35B MBS caps for balance sheet rolloff
- Shrinking to start "as early" as after May meeting https://t.co/21jPkGiBdg

— Jeanna Smialek (@jeannasmialek) April 6, 2022

The reveal that “many” FOMC participants wanted to hike rates by twice as much in March, and that the committee has all but agreed to kick-off a rapid balance sheet run-off as soon as May not only caught a large number of managers and Fed watchers offside, but also seems to have more and more investors believing that the Fed may continue to use the release of discussion minutes—typically a pretty milquetoast recap of an event that markets have already digested—as a more active tool for signaling policy. This would obviously recalibrate not just investors’ reaction to FOMC minutes, but how markets position ahead of their release. We’ll be looking out for this to translate to potential for higher volatility in gold and US Dollar pricing around these releases for the near-term; especially for the official minutes that will follow the May FOMC meeting.

There has been some speculation that Brainard’s remarks on Tuesday were purpose-built to “soften the blow” of a surprisingly hawkish roll of FOMC discussion minutes the following day, and, to varying degrees, it seems to have worked. Although the tech-heavy NASDAQ was again the biggest loser after falling another 2% and more, the losses in the Dow and S&P were more muted on Wednesday (although not negligible by any means.) The gold market certainly bore this out as well, trading as we said, a reliable and steady band with a top at $1930, which extended toward $1940 in Thursday’s session which provided little in the way of directional motivation for gold (or markets in general.)

The fear of a new recession, either caused by the Fed’s tightening to fight inflation, or the ongoing war in Ukraine, or both, seems likely to be a recurring theme in the weeks ahead; particularly if we see more banks and analyst desks making these predictions publicly.

🚨THE FIRST BIG BANK TO CALL A US RECESSION
Detusche Bank says:
*Recession in '23
*Stocks to fall 20% by summer '23
*Unemployment to 4.9% in '24
*10yr yields to hit 3.3% this year

— Dani Burger (@daniburgz) April 6, 2022

From this we might expect more volatility in equities at times, as well as a persistent tailwind for gold prices (alongside other safe-havens like the US Dollar.)

And the Fed is obviously not going away as a narrative driver of markets either. Next week we’ll get another important turn as inflation data for March is released and the effectiveness of the FOMC’s first rate hike (fairly or not) will be measured against those numbers.

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 on Monday for our preview of the week ahead.