GoldPrice.

Happy Friday, traders.

So, what kind of week has it been?

You know what? I’m going to say it’s been a pretty positive week for gold. I admit that comparing gold’s price action in a given week to last week’s deep collapse sets a pretty low bar to clear; even still, some confidence in precious metals seems warranted.

After failing, pretty decisively, to hold on to $1210/oz support during the Sunday-to-Monday overnight sessions gold proved to be resilient at $1200, returning to the key-level even after occasionally doing some real trading in the $1197-1199 range; all while the US Dollar remained fairly strong with the tailwinds of continued positive data from the US economy and weakness in the European economy. Showing some fortitude at those lower levels meant that gold was primed and ready to go on a run as Wednesday afternoon’s Brexit negotiations in the UK hit very choppy waters and sent many market actors around the world in to a risk-off stance, driving gold spot above $1216/oz.

While we’ve seen gold since then fail to hold at that night level a couple times, it once again seems to be setting in a support floor at $1210 assisted by some marginal dollar weakness. With an economic calendar next week that looks fairly inert for the US Dollar it seems that holding $1220 level into Monday’s open would prime for a potential second round at the $1237 November highs before considering a further 1245-1250 challenge. (The big caveat here being: that hope to see strong support at similar levels a week ago proved futile.)

Gold Spot Maintains $1200/oz Support Despite Positive Dollar Data

I’ll admit to being a little edgy, if not outright pessimistic, about gold’s near-term outlook just before I left the trade desk on Tuesday afternoon. With spot price having taken a beating, barely clinging to $1200 (alongside sub-$14 silver,) two days of monthly economic reports were just around the corner that looked to be bullish-dollar signals. Turns out, I should’ve had a little more faith in the strength of support at that big, round number.

The inflation report, bang in line with market expectations in terms of both “headline” CPI and core CPI, did its part to argue that the US economy is at least continuing to move at a steady clip. It was this print in particular that proved a test for strength in gold prices with the Dollar-positive release arriving as gold was trying to recover and hold its $1200 support, which it managed to do. The next morning saw retail sales numbers that were actually slightly higher than expected for October. The report seemed all the more positive as the previous months data was revised down slightly. By this point on Thursday morning, gold had been holding steady around $1210 and the shopping data did little to sink the yellow-metal or boost USD. Shortly after, gold would begin its next attempt to re-test a first band of resistance at $1216; the move set the tone for a Thursday that turned out to be a breather for gold longs.

Other spots we were watching on the calendar were and did little to push gold or any of its correlated assets: FOMC Chairman Powell’s comments during his Q&A session in Dallas were distinctly neutral (in as much as they didn’t depart from previous statements) and unexciting. With a December rate-hike nearly locked in, and one or two more priced-into the market for 2019 it’s hard to imagine anything other than a sharp dovish turn from the Chairman roiling markets and shocking gold prices. Likewise, jobless claims for the week came in just as expected and was mostly ignored by markets. (Wake me up if we get back to 300K.)

So, all things considered, I’m impressed with gold’s mid- and late-week performance after a rough start—I want to tousle gold’s fur and tell gold that it can have two treats because it’s such a good boy. Holding steady at $1200 amidst some strong US economic data was real test and, I think, indicative of it building a strong base. Whether that base turns out to be a launch pad or just a springboard will have to be seen.

The happenings outside of the US, mostly in Europe, were a little more impactful and exciting this week.

Weak German Economic Data Weighs on Euro, Gold

News coming out of Germany’s economy was not great this week, with analysts’ sentiment about current conditions and six-month outlooks stabilizing at recent lows, and German GDP printing negative month-over-month for the first time in two years. There’s always a fair bit of hand wringing when the Europe’s lone thoroughbred seems to be slowing down; this time at least, some of the best explanations are transitory effects, namely: concerns over trade conflict that seem to be calming, and a temporary auto-industry bottleneck created by the introduction of new regulations.

Some inputs for the apparent hitch in the German economy for Q3—as well as the Euro Area as a whole, which this week saw it’s third-quarter GDP revised closer to 0%-- seem less likely to fade fast: consistent uncertainty about the Brexit negotiations with the UK, and mounting questions about the leadership of Angela Merkel’s party and the Chancellor herself. These two issues are more serious and “stickier” for the Euro currency than trade and production-chain concerns; even more than the slumping GDP numbers they feed into.

A weakened and weakening Euro can have serious impact on gold pricing, Because the Euro makes up such a large part of the US Dollar Index, a persistently undervalued Euro can help extend an upward trend in USD even if underlying US data begins to wane. I believe this underlying pressure has been a big part of the narrative in gold and USD trading in the later-half of 2018.

After the weak reporting from the German economy took some of the wind out of gold’s sales, the commotion surrounding Brexit negotiations about 400 miles to the west in London brought back the breeze.

Increased Brexit Uncertainty Creates a Flight to Safety

I don’t think you’re here for a BBC rerun of State of Play, so I’ll spare you a deep analysis of what’s happened in the UK since a little after lunchtime in New York on Wednesday…for now. (Or, you can start here, or here.)

Here’s the need to know: The UK’s Prime Minister May convened a meeting of her cabinet on Wednesday with the intent of getting their approval of the deal she and her team have negotiated with the European Union in regard to a Brexit transition—a necessary step before taking the plan to parliament for a second, much more challenging approval vote. Contradictory reports and leaks repeatedly surfaced as the meeting ran way over time, sending the value of the Pound whip-sawing all over traders’ charts. A bedrock G7 currency was behaving like emerging markets FX, and this led to (for our purposes) two reactions: 1.) a shock of dollar weakness as the Euro ripped higher each time Sterling took a leg lower; 2.) a risk-off flight into gold as a safe haven.

It was this action, and the continued uncertainty that has followed (the cabinet ultimately approved deal, but several members resigned the next morning dropping GBP’s value by more than 1%) that provided the catalyst for gold’s recovery this week, and has spot trading around $1220/oz. On the current path, with each passing day the prospect of a negotiated Brexit deal looks more and more wobbly while the hurdles are only getting higher. Having fallen below 1.28 on Thursday (with a slight bounce above today), it’s fair to say a least a little bit of Brexit disaster is now priced into the Pound, but forget “soft” vs. “hard” Brexit; after this week’s events I feel like the chances of having any Brexit deal in place come March is better than a coin flip—but only just. Should it fall apart for PM May and what’s left of her government, the move to safety and into gold will be a strong one. We’ll be keeping an eye on that next week, among other things.

Next Up

Here are some of the points we’ll be keeping an eye on next week:

• US Housing Starts (Tuesday)
• US Existing Home Sales, Durable Goods (Wednesday)
• Turkey, mashed potatoes, green beans and pecan pie. All covered in gravy.
  
  • Yes, even the pecan pie.

Enjoy your weekend, traders. I’ll see you back here on Monday.