GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets. 

Gold prices are wrapping a textbook example of an “up-and-down trading week,” but the yellow metal has come out slightly ahead of its opening bids from Sunday evening. Enjoying a quieter environment on Friday, gold has consolidated the recovery from mid-week lows and looking ahead to next week for a directional catalyst. 

So, what kind of week has it been? 

The last five days of business have been a whipsaw for gold, and precious metals overall; one in which, initially, any valuation outlooks for the yellow metal specifically took a backseat to strong moves in other, correlated assets. Following the ugly midweek run of weakness when gold’s price action was primarily dictated by a bull run in the US Dollar Index, Thursday’s trading saw tables turned to gold’s benefit, and a surge of short-covering and bargain-hunting pulled spot prices up to a net gain for the week—a position that gold has been able to consolidate on Friday. 

By Tuesday morning in the US, it was clear that “risk-off” was the big mood to start the week with investors generally worried about the next turns the path for global markets. The deepening sense of risk aversion would likely have been a boon to gold prices in different market cycles, but in this case, investors looking for safety were once again rushing straight into US Dollar positions. Not only did this trend not send gold higher, but it dramatically pressured spot prices lower (through its impact on the US Treasury market.) 

• While investors and economists had some global concerns on their minds, such as the possibility of an energy crisis brewing in Europe and the continued uncertainty about the level of risk coming from Chinese markets, the primary worry behind the risk-off attitude centered around eleventh-hour efforts in Washington to address major government funding deadlines. 

• First, by passing a stopgap funding bill to forestall a government shutdown at the end of the week; then to find a passable agreement to raise or abolish (or otherwise render moot) the parliamentary abstraction we call the “debt ceiling” before the US Treasury will be forced to default on some of its debt. 

• Just as this uneasiness send investors and managers flooding into the Greenback—a trend that would eventually drive the US Dollar Index to a 12-month high this week—it blunted the appetite for US Treasury Bonds; with bond price falling, yields moved sharply higher. Yields on the benchmark US 10-year note rose well above 1.5% for the first time in more than three months, which accelerated gold’s fall thanks to their reliably inverse correlation. 

Gold’s initial drop, on Tuesday, was temporarily arrested by some short-covering in the overnight session (which we’ll see again.) By the start of US trading for Wednesday, however, the concern about the possible ripple effects of Congressional intractability had fully gripped markets, and the same trends from the prior session accelerated. This time, gold spot prices fell as low as $1720/oz before seeing support. 

• This marked a six-week low for gold. For silver, more subject to weakness in industrial metals as well, the Wednesday drop saw prices at their lowest marks in over a year. 

A couple of factors shifted on Thursday and became positive drivers for gold’s battered pricing. By the morning’s open, it seemed more likely that legislators at least had the bill and support in place to extend the Federal government’s operational funding into December, avoiding an October 1 shutdown; this helped to turn market sentiment a little more positive—or at least to mitigate panic—and cooled the risk-off rush that had driven the Dollar higher all week. Additionally, with prices at multi-week lows, gold began attracting a mix of short-covering moves and new positions bought by bargain hunters interested in the yellow metal at a relatively cheap value. 

• These tailwinds for gold were accelerated by the increased volatility that often characterized the final trading day of a month. What might have been a modest rally from the lows on another day became a sharp rally that saw gold’s chart turning a deep loss into a week of gains. 

• US Treasury yields have backed off as well, dipping below 1.5% again, loosening that particular cap on gold’s upside. 

With little in the news after a volatile week for markets (the Fed’s PCE inflation numbers have broadly aligned with forecasts and so been mostly ignored,) gold prices look likely to consolidate gains from the late week surge, setting a more optimistic base for next week and the earnest start of October trading.  

As we look ahead to next week, we’ll keep in mind some of the data points and narrative developments that made up this week: 

• The Fed’s PCE data on consumer inflation for the month of August came in close to—but slightly above—expectations. Still-high inflation is sure to unsettle some investors, but with the Fed already signaling that tapering will start at the next possible meeting there’s not much of a reaction function to be had. 

• On the other hand, Initial Jobless Claims continues to stick near higher levels in recent weeks rather than sliding lower as my analysts (including those at the Fed) would like to see. Another big miss on the Jobs Report due next Friday might shake the FOMC’s surety that the US recovery is on stable enough ground to warrant easing down asset purchases in November, so next week’s NFP looks likely to have even more of our attention than usual. 

• While a stop-gap funding bill found passage on Thursday, the federal government’s “debt ceiling” still looms, with the Treasury saying that the cash may run out as soon as October 18. Developments in this perpetual circus of a narrative will be likely to have strong repercussions in the bond market, passing through to gold’s price action. 

For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.