GoldPrice.

Good morning, traders; Welcome to our market week preview, where we take a look at the economic data, market news and headlines likely to have the biggest impact the price of gold this week and beyond, as well as market prices for silver, the US Dollar, and other key correlated assets.

The gold price this morning is trading at a roughly $10 discount to their starting bids from Sunday evening, following an initial journey higher during the Asian market hours.

In a rough repeat of how last week started, an initial climb when global markets reopened to start the week was curtailed and the pared back in reaction to another strong spate of selling in sovereign bond markets during the early morning hours. As yields on the US Treasury’s benchmark 10-year note briefly climbed above 1.6%, gold spot prices fell back through $1700/oz again and, although the first hours of the US trading day have brought some choppy trading, currently sit near 10-month lows to begin the week.

We anticipate that this relationship which, pared with a suddenly rising US Dollar, has dictated the pace and trajectories of equity and commodity markets in recent weeks will continue. There remains some semblance of a bull case for the gold market in the medium-term, as the overnight trading implies that $1700/oz isn’t an immovable line resistance, and the “reflation trade” remains core to current market themes; It’s reasonable to believe that, at some point, a broad repositioning in anticipation of higher long-term inflation has to include using gold it its traditional role as an inflation hedge. Of course, the big unknown remains: How far will gold be allowed to fall before that point comes.

The economic calendar this week is pretty sparse, and so it won’t take out attention too far away from how the bond market might be steering the other large machinery of financial markets. It’s also worth noting that, after two weeks have clearly demonstrated how impactful the thoughts and comments of Fed Chair Jerome Powell can be on a given market day in this phase, the FOMC is quiet this week, having entered a blackout period ahead of the next meeting. It could prove true that a significant safety net for the stock markets has been temporarily removed. Whether that affects investors’ risk appetite this week, we’ll have to see.

US Economic Data to Watch

Wednesday, March 10 at 830am EST // Consumer Price (Inflation) Index (Feb)

[(core) consensus est.: +1.4% YoY // prev.: +1.4%]

[(headline) consensus est.: +1.7% YoY // prev.: +1.4%]

Analysts estimate that consumer inflation in February remained broadly on the same pace as the month prior; Digging into the numbers, the rate of price increases in the less volatile “core” category is expected to look unchanged from January due to a continued pickup in airfare prices (through demand) and some typical retail components being offset by pullbacks in health services spending, and used car prices (which, curiously, was one of the few consistent drivers in 2020’s weakened pace of inflation. Those expected a bigger pickup in the more volatile headline number, which includes energy prices, mostly attribute the gain to higher oil prices last month.

It’s difficult to say how—or really if—we’ll see much market reaction to the inflation data if it comes in as expected. These kinds of numbers should be a dampener for short-term concerns about inflation rising too quickly with the (presumed) passages of White House’s COVID-19 relief bill, but we saw when the most recent PCE inflation metrics were similarly tame that some market forces are just fully committed to positioning now for runaway inflation (maybe) later.

Thursday, March 11 at 830am EST // Initial Jobless Claims

[consensus est.: +725K // prev.: +745K]

Given how worrying the chart of new weekly jobless claims looked through January and most of February, the big upside beat from February’s Jobs Report last week was a pleasant, if very confusing, surprise. Economist care clearly betting on the numbers (which are still historically high) to keep falling, it seems; But I admit to being cautiously optimistic at best. That said, with the dominant market forces mostly concentrating on inputs for inflation and the path of the bond market right now, I don’t think even an unwanted spike in jobless claims back above 800K would shift the current trends in a tangible way.

US Economic Data to Watch

Thursday, March 11 at 630am EST // ECB Int. Rate Decision / Press Conference

[No meaningful changes to monetary policy are expected.]

We let our tracking of the Federal Reserve’s key central bank counterparts in the developed world drop to the wayside for much of the last year, as the stances of the Fed, the BoJ, the Bank of England, and the ECB were all similar (enough) in the broad strokes as each engaged in efforts to maintain economic stability amid the coronavirus pandemic. As we touched on last week, however, monetary policy divergence may be returning to the field: A key driver of the US Dollar’s steep climb last week, particularly at the end of the week, was a market assumption that while the Fed is content to hold its line for the foreseeable future, the European Central Bank (and possibly the BoJ, too) may feel compelled to act by cutting already-negative interest rates even further. (In such a scenario, the Dollar becomes the more attractive bet as its effective yields, while close to 0%, and least would not drive negative returns.)

There’s little-to-no expectation for an actual cut like that from the ECB this month, but in the post-meeting press conference, Lagarde & Co. may step as far out as to reiterate that this option is on the table. I’d keep an eye out for some bigger Dollar volatility than usual early Thursday morning, and the reflexive—inverse, presumably—moves in gold spot prices paired with it.

And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here on Friday for our market-week wrap up.