GoldPrice.

Happy Friday, traders. Welcome back to our look back at the last week’s gold market and the macroeconomic data and headline news that made in impact on the yellow metal, as well as other safe haven assets and the US Dollar. The format is a little different this week, and a bit shorter than usual as I’m under the weather and I suspect my editors would prefer I only submit what I can write without the help of cough medicine. Lucky for my limitations, with a data calendar this week that was absent any major numbers, there was one dominant driver for the collapsing price action we’ve seen from gold (and silver) this week; so we’re going to focus today’s recap on discussing it.

Heading into the weekend, gold spot prices are back to their early October lows around $1460/oz while silver prices, having given up big support at $17/oz in a broader move away from safe haven assets over the last 48 hours, sits just above $16.80; all of this thanks to another massive rally (again) in risk appetite spurred by suggestions of important steps being taken towards a negotiated trade peace between the US and China—suggestions that maybe prove to be a false dawn (again.)

After briefly discussing the US-China trade news that gripped the reins of the market this week, we’ll also touch on the week’s US economic data as well as a curious signal from the Bank of England before turning out attention to next week.

So, what kind of week has it been?

Gold Prices Gave Up Autumn Gains as Trade Deal Optimism Gripped Markets this Week

The deep sell-off in gold this week is a direct effect of one of the strongest surges of risk appetite in financial markets since the Fed began its series of “mid-cycle adjustment” rate cuts over the summer; the surge itself was a direct result of a run of positive headlines from high-level sources with regards to the US and China’s efforts to hammer-out the previously announced “phase one” trade agreement.

The run started in the early hours of Tuesday morning, with an appearance and keynote address from Chinese President Xi in Shanghai, the contents of which included reaffirming a commitment to advancing global trade generally, and “continue to lower tariffs and institutional transaction costs,” specifically. Even without directly alluding to ongoing negotiations with the US, this rhetoric was enough to create a rush of euphoria in risk markets; stocks saw big gains heading into the start of US trading and prices for US Treasury paper started to collapse as did gold’s spot value. Initially, the yellow metal fell through $1500 support, down to $1490.  For a brief moment it looked like the chart might stabilize there, but the flow of cash into risk assets created by the market open—as well as some unexpected gains in service sector PMI which we’ll touch on below—intensified the move and gold prices ultimately fell through to $1480/oz. 

Through Tuesday afternoon and all of Wednesday’s trading session markets were relatively quiet, but thanks to the major shift in sentiment form Xi’s comments (as well as a steady stream of whispers that the two sides were moving closer to a finalized version of “phase one”) “quiet” still meant “going up.” Indeed, even on the days this week that by definition were “mixed” for equities, any given day’s losers were only just. At the same time, the yield on US 10-year treasuries reached past seven-week highs and even as gold prices climbed steadily towards $1490 on Wednesday, it never looked like the market environment would allow for real momentum.

Thursday brought the more impactful headlines, and the deeper drop in gold prices. During the overnight sessions, the Chinese Ministry of Commerce alleged that the US and Chinese trade delegations were incorporating a rollback of punitive and retaliatory tariffs into the initial agreement's structure. Immediately, market hopes exploded higher for the massive stimulus to global growth that would be expected if the world’s two largest economies released their choke on global industry. While equities and the US Dollar ripped even higher, and gold spot collapsed through the floor to $1460. This time, silver prices followed suit and broke below the important mark of $17/oz, indicating that investors were pivoting out of all kind of safe haven assets to allow for greater risk-taking.

With risk appetite ascendant and precious metals prices pinned to the mat, the momentum increased briefly Friday morning with the White House economic advisor confirming the reports of tariff reductions. While these headlines saw gold descend into the $1450s for the first time since August, almost immediately there were doubts about the seriousness of the US confirmation beyond the desire to have market-positive headlines, market by lead the US’ head trade negotiator denying that any such decisions were made. Sure enough, by mid-morning it seems that Donald Trump couldn’t help himself, and the US President went out of his way to announce that he had not agreed to any tariff rollbacks.

The response that I would’ve expected to this announcement was muted, to say the least. Gold and other safe havens rose quickly, but in gold’s case the chart only made it has high as $1467/oz before the overall risk-on tone that dominated this week returned to the driver’s seat and the yellow metal sank back to the floor while the Dollar and US stocks gained more ground. Having digested Friday morning’s trading a bit, I believe it’s the lack of a total rejection of the idea from Trump that is allowing investors to convince themselves that the end of this constrictive trade conflict is just over the horizon.

What President Trump said is not what the markets expect. But he said "the US hasn’t agreed to a rollback of tariffs". It's not a flat denial. What's certain is that if there's no rollback of tariffs, there will be no phase 1deal. https://t.co/fJEKz9hEFi

— Hu Xijin 胡锡进 (@HuXijin_GT) November 8, 2019

Other Data This Week

Before turning our view to next week (which will hopefully happen before my cold meds really kick in,) I wanted to highlight a few other pieces of economic data from the week that, while not able meaningfully impact the gold market, I think still deserves a mention:

• ISM’s Non-Manufacturing PMI showed a bigger uptick in October than was expected, supporting the idea that the services-heavy US economy still has room for expansion.
• Initial Jobless Claims for the week hit a one-month low. It’s more of a headline grabber than anything meaningful, but also underlines the sustained strength of the US labor market.
• While the Bank of England left Britain’s policy rates unchanged as expected, of unusual note is the fact that two voters dissented in favor of preemptively easing rates. It’s something to keep any eye on as the ECB continues its new round of QE in Europe—if there’s one thing that could extend the interminable bull run for the US Dollar, it’s a widening policy differential between the US with rates on hold while its major trading partners ease rates.

Next Up

Next week will still be one of the month’s quieter stretches on the data calendar, but we’ll have a few higher level released with consumer inflation on Wednesday—one of the most important data points in justifying the Fed’s data dependent pause—and retail sales numbers on Friday—which will help us assess the continued strength of the all-important US consumer.

For now, get out there and enjoy your weekend, traders. I’ll see you all back here on Monday for a detailed look at the week ahead.