GoldPrice.

Happy Friday, traders! Welcome to our weekly market wrap, focusing on the market news, narratives, and economic data that had the most relevant impact on gold prices (and may continue to in the future,) as well as markets for the Dollar and other correlated assets.

Gold prices are closing out an energetic five days of trading, in which precious metals have taken advantage of supportive announcements from the Fed and punishing volatility in US stock markets to rise to new medium-term highs and a $50+ gain from Sunday’s open.

So, what kind of week has it been?

Monday: As US Stocks Recouped 2020’s Losses, Gold Prices Also Rose to Counter a Weakening US Dollar

For financial markets in general, the big story on Monday remained the bull rally from the bottom that US equities have been on since the most painful parts of the coronavirus lockdown at the end of March/start of April. In the first trading session of this week, the S&P 500 completed a sizzling run to recoup all of its losses for the year. Optimism—both that we’ve seen out the worst of the global health crisis, and that the US economy will be buffered through a recovery by strong monetary policy support from the Fed—continues to run rampant and push risk assets higher.

U.S. markets saw a strong day, with the S&P 500 wiping out all its 2020 losses. The Dow closed up 461.46 points. https://t.co/A9f90IVUkx pic.twitter.com/Oc9pSha6Ie

— CNBC (@CNBC) June 8, 2020

In the safe havens, Monday suggested that we may be seeing a repositioning, and the return of some correlations that we’d grown familiar with since the last financial crisis. The Dollar, which was without a doubt the king of safe haven assets as instability and fear gripped global markets in March and April, continued an eight day slide on Monday as the rebound in risk appetite has encouraged traders and managers to spend their cash positions on reaching for risk. Gold, meanwhile, looks to have resumed its role as a counter to the Dollar; the yellow metal moved steadily higher from the start of US cash trading on Monday as the Dollar fell. Despite some initial resistance at prior support levels, the Monday evening re-open saw gold pushing back above $1700/oz.

Still, some of gold’s momentum surely came from an undercurrent of uncertainty in the marketplace however, as the same session that saw the stock market’s rise continue also saw buyers stepping into the bond market as well as gold, with the 10-year yield falling farther away from 1.0%. Gold also got some good press on Monday, as Guggenheim Investments’ CIO published a note on Monday which incorporated his view that gold may be a reliable and profitable offset for the Dollar as the Fed keeps pushing as much support as needed into the financial system.

Tuesday: Gold Prices Continued to Rise with a Pause in Equities’ Bull Run

The US stock market, in what proved to be just its first moment of self-awareness, suddenly saw its own shadow on Tuesday and with a quiet economic calendar and ultimately little in the way of newsflow, equities again dominated the market narrative. After nearly two months of a blazing recovery rally that has seemed almost entirely disconnected from the uncertainty and instability of the world around it, the stock markets suddenly hit the brakes on Tuesday in fear that (only now) the sharp rally back to even for 2020 is overreaching. Acknowledging that equities would ultimately continue their unreasoned run higher for one more session, I still think this dynamic should underline the fact that the farther the current stock market run manages to goe, the more fragile it becomes—and the more dramatic an eventual correction may be.

Gold price was the winner on Tuesday. Thanks to the pause in the stock market rally as well as the Dollar’s slide continuing for a ninth day, gold spot enjoyed another day of steady upward momentum. Prices peaked just before midday, finding resistance at $1720/oz, before settling to close the day near $1715. Confirming that the marketplace overall was experiencing a move to safety over risk, US Treasury bond prices also rose for a second day.

Wednesday: Gold Prices Rose Sharply as the Fed Projected a Bullish Environment for the Yellow Metal Persisting Through 2022

The impact of the FOMC’s June meeting dominated the market day on Wednesday, much more than it had in April. Key markets were mostly calm in the morning, passing through an update on consumer inflation data for the US which came in just below expectations on an annualized basis. There will have been some mind disappointment from economists on that point, but with all eye focused on Fed Day we saw no measurable impact on gold (or even Dollar) pricing as a result. Tuesday’s pullback in US equity markets had continued overnight with global stocks falling more. The major US indices, though, seemed to have regained some degree of confidence to start the day and were turning in a mixed performance ahead of the FOMC announcement.

The core of Fed Day, in which the central bank announced no changes to interest rate policy, confirmed that the rapid pace of asset purchases will continue, and delivered their downgraded projections for US economic performance through 2022, was covered on detail by our FOMC recap found here. The upshot for gold markets was a double thrust: a darkening outlook for risk assets alongside reaffirmation that the Fed will be keeping interests rates ultra-low well into 2021 and beyond. Gold spot prices had weakened somewhat in the morning as stocks got off to a better-than-expected start, but rose sharply to $1730/oz and then on to a peak near $1740 following Fed Chairman Powell’s press conference, driven higher by a market-wide pulse of risk-aversion and promises of a low-yield environment.

The reach for safety that added a strong tailwind to gold picked up pace through the afternoon. While US equities had turned positive following the FOMC statement—presumably encouraged by the guarantee of support and stimulus extending further out—stocks dropped lower during Powell’s press conference in which the Chairman devoted more time to underlining the very severe risks still posed to the US economy’s potential recovery.

It was also on Wednesday that we saw a number of reports that many US states were counting a sharp increase in the number of coronavirus cases—most concerningly, it was happening in states that had already begun re-opening their economies and lifting stay-at-home orders. With so much of the recent rally in stocks having been based tenuously on expectations that the worst is behind us, the rising signs that we might only be passing through the eye of the storm added to the downward pressure on risk assets, as we would see on Thursday.

Thursday: Gold Prices Temporarily Reached New Eight-Year Highs as New Signs of a Pandemic Panic Sent Stocks One Big Step Back

The pain in US equities again spread through developed overseas markets, with the key indices in both Japan and Europe falling more than 2%. As New York based traders stepped into the market, weekly labor market data reported that initial claims fell to roughly 1.5 million as expected although the number of continuing unemployment filings came in above expectations. Gold prices moved higher on the news. Gold’s upward momentum picked up pace an hour later as, with investor sentiment crumbing under the weight of evidence that the Covid-19 pandemic may be resurgent in the US, stock markets dropped off the table as soon as cash trading opened.

Dow Jones Industrial Average drops 1,000 points https://t.co/EpM56S0NyA pic.twitter.com/TJU5gvw1SA

— Bloomberg Markets (@markets) June 11, 2020

The US Dollar, which hit a three-month low on Wednesday, saw a rally higher as stocks plummeted, but gold was again the leader in the safe haven clubhouse through morning trading, reaching a peak  (and an eight-year high) of $1745/oz in the spot markets; silver rode the metal momentum as well, topping just above $18. Both precious metals were hit by profit-taking (and perhaps some managers liquidating to cash as stocks plummeted) around midday, but gold spot flashed some bullish signals by finding strong support as high as $1730.  Equities would go on to suffer their deepest daily loss since March, with the Dow falling nearly 7%.

Friday: Gold Prices Are Holding Key Gains as Markets Attempt to Settle and Rest from a Volatile Week

Gold has remained at elevated levels today, even as the US stock markets are showing signs of tentative recovery before the weekend. Spot prices for again reached above $1740 this morning, but there does seem to be some level of resistance at that level that has sent prices back to $1730 where the yellow metal looks likely to close out a strong week. There has been—and looks to be—little in the way of market-relevant newsflow today.

Next Up

On a quiet Friday, I’m taking two observations away from the session and the week: 1.) it seems that gold prices may—in the near-term—now have less sensitivity to another rally in the stock market as traders and managers will be more skeptical about exiting safe positions for an equity rally that could turn so sharply on pessimistic news. And, 2.) I still believe that the bull run in stocks is extremely fragile even from here, and a deeper correction and loss of value could easily push gold prices to new highs.

So, I’ll be keeping that in mind next week as we track the gold market’s next moves. We’ll also be keeping an eye on the US-China trade relationship, a narrative which was strangely quiet this week but which I expect to have a louder drumbeat has we get closer to Federal elections in November. The economic data calendar is pretty quiet next week, but Wednesday’s FOMC projections will have given officials a lot to comment on so I expect FedSpeak to be in focus as well.

Until then, do enjoy your weekend, traders. I’ll see you back here on Monday for our regular preview of the week ahead.