GoldPrice.

Happy Friday traders, and welcome to your recap of the week in the gold market.

So, what kind of week has it been?

An energetic week for gold trading to be sure, despite the (relative) de-escalation-by-omission of US tension with Iran, and the sense that the markets at large were playing wait-and-see ahead of this weekend’s G-20 meeting in Japan.

At the time of writing this morning, gold prices are moderately higher for the week with apparent support at $1400/oz after rallying hard to a six-year high and then correcting lower.

Let’s take a closer look at how the week played out.

Gold Begins the Week Above $1400/oz

Last week’s risk-off tone continued with a strong pulse on Monday, as gold spot picked up another $20 of gains through the end of the US trading session, despite a fairly calm environment in the assets and headlines around it. The only real news flow we encountered was the White House’s announcement of those new sanctions on Iran and a couple more rounds of verbal jabs traded between the two belligerents; really nothing that amounted to more than a little bit of slap fighting.

So, the fact that gold prices continued to trend steadily upward throughout Monday could be seen as evidence of a shift in investors’ mentality about the gold market. Namely, we were seeing a lot more trading dedicated to buying the dips on the gold chart rather than selling the pops. If it’s true, that shift in sentiment combined with (or, more likely, driven by) persistent safe-haven buying will make it easier, I think, for gold to form support lines if prices persist at this higher altitude. Later in the week we would be asking questions about how long the yellow metal could hang on, but not before another dramatic rally to multi-year highs.

Gold Prices Mark a Six-Year Top, Look Overbought

Tuesday trading through the Asian and European sessions was choppier than usual given the light news flow. Gold prices hit a six-year peak just below $1440 near midnight in New York, which was enough to move the gold chart into an “overbought” position from a technical standpoint and began to look due for a “healthy correction”; from that view, the minor profit-taking just before New York traders came online for the day was reasonable.

Into the US morning gold held on to its lofty levels with some help from a pair of poor reports on US macroeconomic data: the Richmond Fed Manufacturing Index delivered an unexpected decline (now the fourth dour view on US manufacturing in a week after New York, Philly, and Dallas; although not as deep a dive as those three), and New Home Sales for May showed a collapse for a second month in a row.

By lunch time though, gold had taken a sharp leg down. Some are arguing that the drop was a result of FedSpeak headlines while others wrote it off as price consolidation and a normal correction. As with most things, the truth is probably somewhere closer to the middle. Even if I myself was a technically-focused trader, it would still be pretty difficult to write more than ten words about price correction so let’s talk about what the Fed said.

Bullard, Powell Comments Dampen the Party and Gold Prices

In an interview on Bloomberg (which, I have to admit, caught me a little off guard as I assumed any relevant comments would be reserved for his scheduled appearance that evening) St. Louis Fed President James Bullard muted the recent excitement about easier monetary policy on the way by suggesting that the cut he argued for in June (which still seems likely to come in July) would be a one-off and not the start of an extended cycle of monetary easing.

US dollar jumps after Bullard dismisses calls for 50 basis point cut https://t.co/tp06Z9HtOz

— ForexLive (@ForexLive) June 25, 2019

In my mind, this was actually more impactful on the market sentiment—and through that lever, the drop in gold prices—than the boss J. Powell’s comments shortly after; many were expecting Chairman Powell to make some attempt to temper expectations following last week’s FOMC or, failing that, at least not add fuel to the fire. But to see Bullard, one of the most dovish committee members by far, seem to tap the breaks a bit is absolutely a bigger deal. It looks like the Fed is setting their marker: they may be heading for a cut in July, but only one.

As we’ve been discussing for the last few weeks, gold’s bull run has been driven by four key forces: the implication of easing monetary policy (lower rates) all over the developed world, safe-haven buying (as a reaction to US-Iran tension and fear of a global slowdown), bullish technicals, and a slumping US Dollar. Bullard’s comments, and Powell’s which ultimately echoed the same messaging, have for the time being tamped down on the “easy money” impulse. Gold gave up the whole of its Tuesday gains on the back of these comments. The yellow metal would see a slight afternoon rebound in price, but the re-open of trading for Wednesday’s book of business (at 6pm EDT, an hour ahead of the proper Asia market open,) is when I think we saw the real “correction” trading come in. Throughout Asian trading the correction and consolidation deepened, as short-term longs sold-out and spot prices looked like they might threaten the bold line of support at $1400. Instead, buyers stepped back in, and gold prices settled into narrowly-banded trading between $1405-1410/oz.

Markets Take a Breather as Gold Prices Consolidate Above $1400

Through Wednesday and Thursday, the news flow calmed considerably and the gold chart settled within that same range with an occasional, unconvincing foray above or below the $1405-1410 bands. That’s not to say nothing was happening, of course. On the news front, we got a few headlines and hints ahead of Trump and Xi’s planned meeting at the G-20 summit over the weekend, all seemingly positive. US Treasury Secretary Mnuchin said that an deal is “90% done,” and other reports have suggested that the agreement that would bring everyone back to the negotiating table will involve some version of forestalling the next round of US tariffs on Chinese goods while talks resume, with a six-month deadline on the hold. The muddled market reaction to this news, I think, demonstrates that: 1.) nobody is going to celebrate a deal until a deal gets done, and 2.) nobody is sure what the deal will look like or who (or what assets) will come out as “winners.” On the data calendar, Wednesday’s Durable Goods report was a disappointment on the headline number although the important ex. transportation number was actually a marginal improvement on expectations.

Markets Position Ahead of Trump-Xi Meeting

Heading into the weekend, gold prices have managed to surmount the Wednesday-Thursday trading band thanks to some strong buying Thursday night that actually saw spot trading as high as $1420/oz again before sellers stepped back in from Europe. I suspect the rally was driven at least in part by overseas investors positioning for gap risk ahead of the Trump-Xi meeting scheduled for Saturday (or Friday night in New York,) and the sell-off around the European open was probably just another round of profit-taking.

Now that we’re into the US trading day, the markets feel pretty quiet as everyone looks to the weekend. On the US economic picture, this morning we saw the May update on Personal Income and Spending, as well as the Fed’s preferred metric for inflation, all printing in-line with expectations. The switch has flipped of course, and whereas as-anticipated inflation data a month ago would have been seen as confirming the Fed’s decision to keep rates on hold, it’s now taken as support for the Fed’s apparent bias toward cutting rates at the next meeting. The ECB, also of a dovish bent in recent weeks, received similar inflation data this morning.

Presumably by breakfast tomorrow we’ll have our next round of US-China headlines—by all accounts expected to be news of trade talks resuming—and begin making best-guesses at how markets will react on the Sunday night open. With gold prices still elevated, news of a botched meeting could see the chart gapping up to $1430—the next level analysts say gold needs to hold steady to sustain its outstanding rally—or higher; on the other hand, it seems like an agreement to put new tariffs on hold and take formal negotiations up again is mostly priced-in to the market. We could see some selling of risk-on assets in that case, but I think there’s still enough support driven central bank rhetoric and other safe-haven motivators to cushion gold at $1400 or above.

Next Up

That, traders, is how things look wrapping up the trading week. Looking ahead, next week’s calendar is a little odd with US Independence Day on Thursday but the June Jobs Report on Friday so we may see some atypical market reactions to the NFP if everyone calls it a four-day weekend and leaves liquidity shallow. We’ll also get update PMI for what’s increasing looking like a battered US manufacturing sector. First though, we’ll have to see how the US and Chinese Presidents get on in Japan.

Enjoy your weekend, traders! I’ll see you back here on Monday for a look at the week ahead.