GoldPrice.

Happy Friday, traders. Welcome back to our weekly market wrap, focusing on the week’s market events that mattered the most for gold prices, as well as the Dollar and other key correlated assets.

Gold prices are trading roughly $10 higher from the start of this week in global markets, selling for $1708/oz in spot markets at the time of writing. At the end of a tumultuous week for precious metals, both gold and silver are holding on to gains.

While little has surprised us or changed the consensus outlook for markets—from a purely macroeconomic standpoint, at least—we have learned some things this week about just what kind of data can still impact the risk markets that are becoming numb to the economic realities of this crisis, and how that impact is likely to pass through to gold prices.

So, what kind of week has it been?

Monday: Gold Prices Weakened and Equities Rose Despite Looming US-China Trade Tension

Gold experienced some moderately choppy trading through the balance of Monday morning following our weekly preview post. US equities were initially off-pace to begin the week, rattled, as overseas markets were, by the looming threat of the US taking back up its trade war with China, as well as another sharp drop in oil prices threatening to further destabilize the energy markets. Smoothing the chart out for analysis, gold prices traded mostly around $1705/oz through the day while silver priced foundered, never looking like retaking the $15/oz level.

While the US-China trade tensions didn’t show any signs of abating, and the news and data flow around the global crude oil glut was mixed at best, both US stocks and the market for West Texas crude would eventually rally higher on Monday. Oil markets appeared to get a lift by further unwinding of some of the technical stress on futures markets coinciding with a drop in reported inventory builds at over-stretched storage; risk markets meanwhile got a boost from the ensuing rise in energy stocks and some optimistic (if very thin) outlooks for the current crisis—in economic terms—moving towards the recovery phase.

With both rallies boosting general appetite for risk, gold prices sank in the last hour of the trading day, falling to $1701/oz, close to strong technical support. 

Tuesday: Gold Held $1700 Support as Important Fed Officials Signaled Cautious Optimism Around Recovery

Despite some strong pressure in the overnight trading hours, those support levels held well through Tuesday’s session. The European market saw increased volatility for gold prices but within a very narrow band as selling pressures bore down on the yellow metal well into the start of US trading, but buyers appeared to be a reliable constant just below $1700/oz.

Both gold and equity prices were mostly unmoved by the ISM’s report on the US services sector for April, which for the first time since the GFC dipped into contractionary territory below 50.0. See our recap of Tuesday’s ISM data here, for a deeper look at why that number is important. Rather than be held back by a (expectedly) downer data report, US stocks seemed content to focus on the slow steps towards reopening the economy in some major metro areas: the S&P 500 registered a second consecutive day of gains, despite a late drop on some tones of caution from the day’s Fed Speak.

Fed Vice Chairman Richard Clarida mixes a sobering acknowledgment of the economic damage of the virus with an optimistic outlook for the 2nd half of the year https://t.co/H29AqIIxbL

— Bloomberg Economics (@economics) May 5, 2020

Crude oil price would also continue their rally on Tuesday; this boost to the overall commodities complex, alongside the general impulse to buy everything that comes with a rally in stock prices lately, helped support gold as well and spot prices rose steadily higher throughout the afternoon. The yellow metal reached its peak just above $1710 in the mid-afternoon before unwinding to $1705/oz at the daily close.  

Wednesday: Risk Markets were Rattled by Colossal Private Payroll Job Losses, Gold Sank below Support amid Rush to USD

Gold’s steady price support at $1700/oz broke down on Wednesday, under the weight of the market reaction to the latest ADP report on private payroll jobs “added,” which as expected tallied 20 million jobs lost for the month of April; also contributing to the move, we have to believe, was a sizeable downward revision of the previous month’s number, to -149k from -27k. Metals prices fell sharply on the news as the Dollar rose. Equity markets would have a shaky session, turning in the first daily decline in three; yields on benchmark US 10-year debt climbed above 0.7% on news that the Treasury will be issuing a massive amount of new debt to help manage the cost of the massive economic stimulus/rescue packages.

Two things I’ve taken away from Wednesday’s move (and subsequent rebound in gold prices as well as stocks the following day): 1.) While the major asset classes seemed to have already priced-in a great deal of the ugly economic data we’ve seen for March and April (see non-reactions to Q1 GDP, the last few weeks of multi-million jobless claims,) there sure was a lot of sensitivity to the monthly labor market data, even though it came in relatively close to expectations (and, looking ahead, we saw a similar function around Friday’s NFP.); 2.) for the time being, in these outsized fearful market reactions to recession-indicating data, the US Dollar is the safe haven asset firmly glued to the catbird seat—investors clearly prefer to move positions into cash over gold at the moment when looking for assured protection, so gold for now appears to have some temporary downside risk around the top-tier labor market data points.

Going back to Wednesday’s chart, the yellow metal fell through the open of US stock markets before finding decent support roughly $10 below Tuesday’s troughs, near $1685, and eventually flattened around that level as trading calmed in the afternoon and through the market close.

Thursday: Buyer Stepped into “Cheap” Gold, Wednesday’s Weakness Unwound as Spot Prices Rallied Above 3-week Highs

As we’ve seen repeated in recent weeks, gold’s midweek downturn was short-lived. The Asian market session was relatively calm with the return of Japanese commerce following a holiday, and precious metals got some lift in the trading, no doubt from some amount of concern over more signs of distress around the tenuous US-China “phase one” trade agreement, with silver crossed back above $15/oz as the European session began. From there, gold maintained a steady course above $1695/oz with low volatility. The chart passed fairly calmly through the weekly release of Initial Jobless Claims which once again topped 3 million, though the risk-off mood of such a massive number did give gold prices a brief lift ahead of the US market open.

It was just before lunch that Wednesday’s market began to fully unwind. US stock pushed higher, choosing to focus still on the steps taken to reopen some major parts of the US and global economies as well as a handful off not-as-terrible-as-feared earnings reports instead of the cratering labor market. At the same time, investors and managers looking for safety made clear their preference for gold and US treasuries over the Dollar; while the Greenback weakened and US 10-year’s yield slid back below 0.65%, gold prices coursed to a peak of $1718/oz in the early afternoon, their highest level in more than three weeks. The rally was muted somewhat late in the session by some profit-taking (to be expected) but the yellow metal held on to close Thursday’s trading at $1715/oz.

Friday: Gold Has Been Weakened Again Following Brutal April Jobs Report, but Buyers Have Held the Yellow Metal Above $1700 to Close the Week

The gains in the gold market managed to stay steady through the overnight session before taking a hit this morning on the heels of an historically bad monthly Jobs Report that every investor and analyst had been looking ahead to this week. Landing more or less as anticipated—perhaps just slightly less damaging than the consensus estimates, though both numbers will surely be revised for the worse—the NFP number for April a reported a loss of over 20 million American jobs, effectively wiping out and entire decade’s labor market in just one month. Headline unemployment has meanwhile spiked into the double-digits.

BREAKING: the U.S. lost 20.7 MILLION jobs in April, the greatest monthly net loss on record. The unemployment rate rose from 4.4% to 14.7%, the highest since the 24.9% reached in 1933 during Great Depression

— Ali Velshi (@AliVelshi) May 8, 2020

For some key safe haven assets, the reaction to April’s Jobs Report was very similar to what we observed in the wake of Wednesday’s ADP numbers: gold and US Treasuries saw sharp selling (gold spot prices dropped nearly $10 to 1708 while 10-year yields climbed back towards 0.7%) as the US Dollar swiftly appreciated. It looks like further confirmation of my Wednesday observations: 1.) risk markets in general had a knee-jerk reaction to the more macro monthly data on the US labor market (despite, again, little in the way of movement around Thursday’s jobless claims); and 2.) that sudden reach for safety, for now, pushed positions into the Greenback above all others and to some extent at the expense of gold values. While next week’s data slate has fewer tier-one reports, we’ll continue to monitor this dynamic over the next month.

Since Friday morning’s jobs report, gold prices briefly rebounded at the open of the US stock markets, with buyers stepping in perhaps in hopes of a repeat of Thursday’s energetic rally higher. That bet, so far, has not paid off with gold sinking back below $1710/oz at the time or writing. The stock market has continued moving higher today though, even in the face of the labor market’s historic collapse.

U.S. stock futures rise after payrolls report shows record number of Americans lost their jobs in April https://t.co/SU8W8AzUhQ pic.twitter.com/BlBKToFrfI

— Bloomberg Markets (@markets) May 8, 2020

This too will earn some of our attention in coming weeks, as such an incongruous rally higher in equities despite the dire current state of the broader economy (according to anecdotes and the macro data, at least) creates the potential for a frenzied rush into safe havens if the stock market’s bullish momentum gets snapped.

Next Up

As I mentioned, next week’s data calendar is light. FedSpeak will continue, and along with the narratives I’ve just mentioned will also be looking to see if we come out of the weekend with better or worsening data around the containment of Covid-19 as more and more metro centers are loosening lockdown restrictions. We’ll also be keeping tabs on the state of US-China trade tensions, which took a step away from the brink this morning, but as well know from last year have the potential to fire back up with just a single tweet from the White House.

For now traders, get out there and enjoy your weekend. As quarantine restrictions are easing in many placed, I hope you will do your best to stay safe. I’ll see you back here on Monday for our weekly market preview.