GoldPrice.

Happy Friday, traders! Welcome back to our weekly market wrap, focusing on the news, events, and economic data that had the biggest impact over the last trading days on gold prices as well as the US Dollar and other correlated assets—and may continue to have an impact in the future.

Gold prices are soaring higher at the time of writing on Friday, looking to challenge $1750/oz in the spot market as darkening clouds of risk to the post-coronavirus recovery and to global trade have enveloped the market narrative and helped return some of the precious metal’s strength as a primary safe haven investment.

So, what kind of week has it been?

Monday: King Dollar Pressed Gold Prices Below $1700 to Begin the Week

The shift in flows that was in play as our weekly preview piece went up Monday, ultimately set the weak tone for gold trading to start the week. Against a background of new steps towards re-opening key parts of the US economy—whether that was being taken as a risk-on or a risk-off signal is up for debate and likely varied from one account to the next—the US Dollar saw an in-flow of buyers (again, either as a signal of optimism for a US economic recovery or by virtue of the Greenback’s current role as king of the safe havens) while gold was selling alongside safe US Treasuries. Yields on US 10-year notes rose back above 0.7% while gold spot prices fell to $1695/oz, where the yellow metal found support and mostly sideways trading for the rest of the day.

Elsewhere, in a relatively quiet news day, oil prices continued to struggle. Another round of production cuts announced by Saudi Arabia would bring planned production in the Kingdom to its lowest in nearly 20 years, but it wouldn’t have a boosting effect for crude prices until later in the week. US stock markets were decidedly mixed on Monday, with the Dow falling off slightly while the Nasdaq moved higher as tech stocks continue to perform exceptionally well as a sector amid the current crisis.

Tuesday: $1700/oz Gold Returned, but the Yellow Metal’s Upside was Tempered by Dollar Flows and FedSpeak

Market sentiment was dominated by public commentary and rhetoric on Tuesday, as US investor optimism (and with it, the stock market’s momentum) was dampened by warnings from the warnings of caution and pleas for patience from Dr. Anthony Fauci, the government’s chief infectious disease expert, in remote testimony to Congress.

Dr. Anthony Fauci warns Congress that reopening could risk more outbreaks and backfire on local economies. https://t.co/cZASVnZYoI

— CNBC (@CNBC) May 13, 2020

Gold prices had been steadily rising since the European trading hours and reached an intraday high of $1710/oz in the spot market before testimony from Dr. Fauci put a stronger thread of risk-aversion into US markets; gold fell from the late morning high as the Dollar strengthened further. US treasuries this time saw some buying alongside the Greenback.

The trajectory of gold prices and Treasury yields moving lower was exacerbated by comments from a swath of Federal Reserve members who made an effort to brush aside any talk that an unprecedented move into negative interest rates is on the table; as is becoming the habit of experts lately, these comments directly contradicted language from the President on Tuesday. Buyers responded by stepping in to buy Treasuries at a faster clip as the 10-year yield fell back below 0.7%. Gold prices sank a bit further but, in a bullish indication, demonstrated clear support at $1700/oz once again.

April’s consumer price data was reported earlier on Tuesday morning, showing that inflation flagged a little more than expected in the first full month of the crisis. A mild degree of risk-aversion spiked through markets on the release before being overtaken by the newsflow around Dr. Fauci’s testimony. From here, we move into the unknown on major macroeconomic data as there is still no way to tell what impact the early stages of “re-opening” will have on the health or economic data of the US economy.

Wednesday: Gold Price Rose Further as Powell Spoke More Gloom and Worry into the Medium-Term Outlook

The middle of the trading week was a rough one for US equities and other risk assets, mostly to the benefit of gold prices. The key focus of the day for markets was Federal Reserve Chairman Jerome Powell’s public remarks. The Fed Chief conveyed genuine and dire concerns about the outlook for the US’ economic recovery, while also making the point that the downside risks diminish at least slightly if the government can gather the political will to bring the necessary fiscal support to bare, saying, “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage,.” Adding his voice to Tuesday’s chorus from FOMC members, Powell also brushed away the suggestion that negative interest rates would be appropriate for the US response.

In response to the darker tones, US stock markets ground lower on Wednesday; the Dow gave up more than 500 points (as tumbling airline stocks were a particularly heavy weight around the index’s neck) and the S&P for a time fell below what had been consistent support levels in recent weeks.

 While Chairman Powell’s warnings certainly provided momentum for gold as an injection of risk-off fears the precious metal, which peaked intraday near $1717 in spot markets, also faced some headwinds from the comprehensive insistence from Powell & Co. that the US economy is unlikely to see negative policy rates in the near future. If the Fed were to institute a negative rate environment, gold would become a more attractive investment as the zero-yield yellow metal would look better on many position sheets than negative-yielding debt. Having that (admittedly remote) possibility firmly taken off the table takes with it a bit of theoretical upside for gold.

Thursday: Gold Made Big Gains to $1730 as the Decline in Jobless Claims Stalled and the Storm Clouds of US-China Trade War Loom on the Horizon

The trend of economic data and market-relevant newsflow had taken a risk-averse shift with Chairman Powell’s testimony on Wednesday, and that has persisted through to the end of the week. In the Wednesday/Thursday overnight trading ours, global equities markets took their cue from US indices’ poor performance and, following the weekly data on jobless claims which reported the number of initial claims as much closer to 3 million than the expected 2.5 million, US stock markets plummeted at the Thursday morning open.

Jobless claims: Another 2.98 million Americans file for unemployment benefits https://t.co/JNsfGAaZFf by @heidi_chung pic.twitter.com/ycqSBOny5e

— Yahoo Finance (@YahooFinance) May 14, 2020

From a strong position by virtue of the prior day’s gains, the market open on Thursday saw gold regain some of its usual mojo as a safe haven negatively-correlated to equity risk taking: the yellow metal spiked as cash trading began, rallying from the $1715 range for spot to above $1730/oz and later $1735 as stocks dropped and the US Dollar weakened. Gold had little trouble holding the elevated levels through the trading day while US Treasuries also saw an increase in buying.

Although US stocks would eventually pare back their losses, led by a rebound in big bank shares, gold and other safe haven assets would have no shortage of gloomy risk-off narratives to add to their value. The most worrying of these being the drums of trade war growing louder as Donald Trump claimed a total unwillingness to renegotiate the “phase one” trade agreement between the US and China despite the fact that the coronavirus has put the global economy in an entirely different (and precariously fragile) state of play from when the deal was made last year. This, coupled with the US government deliberately delaying the flow of some federal investments into the Chinese capital markets, is indicating that the White House has no sensitivities about drumming up a redux of the US-China trade conflict that choked global economic growth in 2019.

Also helping to support gold prices at the week’s end: oil prices surged to new five-week highs on Thursday in response to signs that a deluge of production cuts (so to speak) is finally passing through to oversupply issues, if only slightly. On the back of oil’s rise, the core basked of raw materials strengthened, with the Bloomberg Commodities Index gaining more than 1%.

Friday: Gold Prices Are Reaching Higher to Close the Week as Risk-Off Gloom Persists

Gold has continued its gains so far on Friday as US equities and other risk assets have continued to stumble. Most likely impacted by Retail Sales for April coming in even worse than already-poor expectations, especially in the ex.-Autos number.

Just In: U.S. retail sales plunge by the most on record in Aprilhttps://t.co/zPMWg5QJww pic.twitter.com/45CZIaKSUs

— Bloomberg Markets (@markets) May 15, 2020

The rally in gold that started with the economic data’s release initially added another $10/oz to gold’s value and has moved higher even as equity markets recover somewhat from shaky start. With spot prices for gold trading near $1750/oz, it’s very possible that we’ll see some profit-taking knock a few dollars of the top before we head into the weekend.

Other economic data from this morning showed the faintest signs of sunlight on the other side of the current crisis. The New York Fed’s Empire State Manufacturing survey, still in the dumps, managed to score a solid 20 points higher than the consensus expectation while Consumer Sentiment for May surprisingly increased since the month prior.

Next Up

The economic data docket for next week is pretty sparse—we will get discussion minutes from last month’s FOMC meeting on Wednesday, but with all the public commentary this week from Fed officials we have a pretty good sense already of what we’ll see there. With no red circles on the economic calendar to pull our focus, the US-China tension that has been building may well come to rival the state of mission to curtail the coronavirus as a dominant story that dictated market direction.

For now, I hope you’ll do you best to stay safe and enjoy your weekend, traders. I’ll see you back here on Monday for our regular look ahead.