GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, with a focus on gold prices and the market narratives and economic data that had the biggest impact the yellow metal and will continue to do so next week.

Gold prices are trading lower for the day, but roughly flat to the week’s opening prices as Friday’s session has been dominated by a major shift to risk appetite in response to the US and other developed nations turning some attention towards resuming normal economic activity.

So, what kind of week has it been?

Monday: Gold Prices Made New 7.5-year Highs Above $1700/oz

Timing can be a funny thing when writing about commodity or currency markets, as demonstrated by the fact that within maybe five minutes of me submitting my Monday peace that kicked off with “gold prices are challenging” the $1700/oz spot price level, the yellow metal pushed pretty effortlessly through that line. From there, gold moved steadily higher throughout the day, to mark new 7.5-year highs in both the spot and futures (June contract) market. Following some correction and profit-taking off the top tick near $1720, prices closed Monday’s sessions strong near $1712/oz. Silver, though struggling to find the same level of momentum due to drag from its sensitivity to industry, ended the day well above $15.30/oz while the US Dollar had weakened along with Treasuries; the yield on 10 year US debt moved above 0.75%.

The 'wind is very likely in gold's sails' as it hits a seven-year high https://t.co/TpfgQEwjwL

— CNBC (@CNBC) April 14, 2020

In stocks, Monday was a poor showing for the world’s developed markets including the US, although the S&P did manage to pare back a considerable amount of its losses before ultimately closing in the red. In the coverage, a lot of the equity market weakness was attributed to investor concern ahead of a uniquely uncertain earnings season that kicked off this week. The news elsewhere was mostly positive, with rising signs of stabilization (if not a tentative slowing) in some of the highest coronavirus infection zones in the US and Europe.

Still, there are narrative threads to be concerned about as well. With some analysts, economists, and policy-makers daring to turn attention to when parts of the US economy may be able to “re-open,” a potential new point of instability has arisen as a conflict brews between the President and the governors of several states over POTUS’ lack of authority to compel those states to resume normal activity. Also on the list of disappointments, while OPEC+ finally arrived at a peace deal to cut nearly 10 million barrels per day from production, the crude oil market trade largely unimpressed by the move as prices ultimately moved lower.

Tuesday: After a Brief Pause, Gold Spot Prices Rallied Higher Led by a Surging Futures Market

Gold and silver bulls held serve through Tuesday’s book of business, as buyers lifted the precious metals to $1725 and above $15.50/oz, respectively, in the early rounds of the European session. The start of pre-market trading in New York saw the rise continue and sharpen, with gold spot reaching near eight-year highs at $1745/oz while sliver moved past $15.75/oz.

While some degree of the inflows for gold was certainly driven by bullish technicals, there was also a fundamental reach for safe haven assets Tuesday morning as risk markets recoiled from a glum World Economic Outlook report from the IMF, which foresees a 3% pullback in global growth for 2020.

"This crisis is like no other," the IMF's chief economist writes, citing "severe uncertainty about the duration and intensity of the shock." https://t.co/iiwoKvlfmE

— David Gura  (@davidgura) April 14, 2020

There are some constructive elements within the full report, but the market’s initial reaction was certainly based on the doomsaying headlines calling back to the Great Depression.

Gold spot prices were also being pulled higher Monday and Tuesday buy a surging market for gold COMEX futures contracts, with active contracts reaching towards $1800, a level untouched since 2011. There has been a much wider spread than usual between the futures and spot prices this week, suggesting a lack of liquidity. For as long as the abnormally wide EFP spread and shallow market persists, directional moves may be exacerbated; gold’s sharp rise through Tuesday could be pointed to as an example of that. The yellow metal saw some selling mid-Tuesday morning as some short-term investors locked their gains, and another afternoon round of profit-taking would see spot prices close nicely at $1730/oz with silver trading at $15.75.

Newsflow around the markets was generally negative, but light. So while financial media’s coverage focused on the IMF outlook as well as brutal earnings reports from JPMorgan and Wells Fargo, investors seemed happy to be lulled by another day of improving coronavirus case numbers: the S&P picked up more than 3% for the day while the NASDAQ rose through some key technical levels; even as crude oil prices continued to deflate.

Wednesday: March Economic Data Continues to Worry (But There’s Hope), Gold’s Rally Takes a Breather

A pause in gold’s rally came Wednesday, starting in the European trading hours as the yellow metal sunk as low as $1710/oz. Prices rallied from support ahead of the US morning, but gold was suppressed throughout the day and traded with little momentum in a $1715-20 band.

Three factors seemed to be at play during gold’s uninspiring Wednesday. Mostly, it seemed a reasonable correction following the metal’s energetic rise to begin the week; but also, much of the broad commodities complex was under pressure while oil price continued to fall on persistent fears of long-term oversupply stoked by a pessimistic IEA report. Lastly, a darkening mood around the economic outlook (despite still-improving Coivid-19 infection data) may be pushing to some managers to liquidate profitable gold positions to build up cash ahead of another downturn in equities.

We saw signs of this third dynamic with around the release of the Wednesday morning’s economic data. While Retail Sales data for March came in near enough to expectations with a record decline of 8.7% for the month, the New York Fed’s Empire State Manufacturing Index cratered through predictions and doubled its lowest level in the 2008 financial crisis. Rather than putting a risk-off bid into gold, spot prices actually dropped lower on the news as—in my view, at least—some investors rolled out of their gold positions, not wanting to get caught out if there were another rush to cash.

While I don’t want to be a Pollyanna in the midst of a global health and financial crisis, I do think there are two (slightly) more optimistic points to make about these data sets. For one, the retail numbers are objectively bad, but remember that many top-tier analysts had been expecting a drop well into the double digits. As for the Empire State manufacturing survey: we’re going to see a lot of comparisons of this (and next) month’s data to the economic metrics from the 2008 financial crisis, and a lot of what’s happening now is going to look the worse. What I think it mostly is though is different. Though manufacturing has been forced shuttered in an unprecedented way as the nation fight the spread of the coronavirus, I believe that in this extraordinarily unique situation that lost industrial activity (and, more importantly, its millions of jobs) is much more elastic now than it was in 2008-09. A return to normal, or something like it, is not guaranteed by any means. But I’m holding on to hope that the economic damage will ultimately be less than in the Great Financial Crisis.

As gold prices wrapped up Wednesday’s session trading above solid support at $1715/oz, US stocks ended the day roughly 2% lower as Treasuries rallied and sent the 10-year yield back below 0.7%.

Thursday: More Ugly Data Forced a Rotation from Gold into Cash

Buyers and bulls stepped into weaker gold prices during the Wednesday-Thursday overnight session while risk assets were mixed. Through European morning trading the yellow metal climbed steadily back towards $1740/oz ahead of a raft of US economic data. That data, as we’ve come to expect, was gruesome. You can find in depth coverage of each report on the goldprice.org news page, but the headlines are: the Philly Fed’s manufacturing index fell nearly twice as far as expected, new housing starts dropped more than 20% in March, and the number of new jobless claims for the week once again topped 5 million (bringing the four-week average to 5.5 million.)

In the gold market, we saw a stronger version of Wednesday’s move-- which make sense, given the emphasis placed on labor data right now—from easily profitable gold positions into cash; gold spot fell sharply to just below $1720/oz while USD made gains (and would continue rising through the day.) We also saw signs that some of the money flowing out of gold and other assets was moving into US debt as Treasuries prices rose.

Gold managed to rally ahead of the cash open for US markets but remained under noticeable pressure throughout the day from a combination of movement to cash and, most likely, some amount of pure profit-taking from short-term longs. Due mostly to some sharp midday selling that tested the metal’s intraday support at $1710, gold prices finished trading roughly flat to the prior day’s close. US equities turned in a volatile day, mostly finishing on the upswing thanks to the White House rolling out a possible roadmap to “reopening” the economy; oil continued to be the dog of the week, with barrels of WTI slipping below $20.

Friday: A Surging Return of Risk-Appetite has Pushed Gold Back to UNCH for the Week

Heading into the weekend, gold prices have traded with increased volatility ultimately pushing the yellow metal lower and through the $1700 level for now. Beginning almost immediately with global markets re-open, gold and other safe havens have been moving lower. While Thursday’s weakness appeared to be based on strategic adjustments and profit-taking, today’s looks to be largely driven by a resurgence in risk appetite. Equity markets around the globe have been rising today, in apparent celebration of some G7 governments (including the US) and major firms turning their attention towards the path to reopening and recovery amid a week of generally optimistic data tracking the worldwide fight to contain the Covid-19 virus.

Gold prices initially broke below the psychological support level at $1700/oz overnight as European stocks surged. The chart has made some attempted since then to regain a footing above the round number, but as we moved into lunchtime trading on Friday gold prices have been held below $1690/oz (silver has so far held onto its pricing above $15) as the American equity markets are up roughly 2%.

Next Up

Next week’s data docket is fairly light, with Durable Goods on Friday looking like the only major report; though I do expect more public commentary from Fed officials so that will bear some attention as well. If we have a “healthy” weekend of containment and treatment numbers around the coronavirus pandemic we could see this run to risk continue. Of course, the more it does, the sharper the rush back to safe havens could be if/when the global health effort hits a speed bump. It’s hard to feel like we’ve seen that last of $1700 for this quarter.

For now, do your best to enjoy your weekend, traders. I’ll see everyone back here on Monday for a brief look at the week ahead.