GoldPrice.

Happy Thursday-like-a-Friday, traders. Welcome to our weekly market wrap, where we like to focus on the economic data, news flow, and market narratives that have had the biggest impact on gold prices (and may continue to in the future,) as well as key correlated assets like the US Dollar.

At the tail end of a volatile four-day week, gold prices have settled down after some strong selling that followed new 8.5-year highs for the precious metal in both spot and futures markets, and look set to finish higher on the week.

So, what kind of week has it been?

Monday: Gold Prices Consolidated on Monday Ahead of Tuesday’s Breakout

Taken in the context of gold’s performance later in the week, Monday was a phase of consolidating the gains that gold had made in recent weeks; coiling a spring before momentum would carry the yellow metal higher. Against a background of choppier trading in other major assets, gold spot prices set up strong support at $1770/oz once again and held near to that line throughout the US session.

Elsewhere in financial markets, investors were made to choose between reacting to negative news and holding onto a stubbornly optimistic outlook for a strong and swift global recovery despite rising coronavirus infections and a number of US cities walking back their re-opening processes. The WHO added a voice to the doomsayers on Monday by striking a dramatically pessimistic tone about the near-term outlook, but traders and managers in the US seemed content to focus on more positive (if less impactful) data points like a record spike in Pending Home Sales reported for May. While there were still signs of cautious positioning in other risk-related assets (US Treasuries saw buying that drove the 10-year’s yield well below 0.65%,) US stock markets, with their rose-tinted blinders on tight, made new gains on Monday as the S&P 500 made back the whole of its losses earlier in the month on the way to closing out a second quarter performance that seemed unimaginable in May.

Tuesday: Gold Futures Surpassed $1800/oz as the Yellow Metal Reaches New 8.5-year Highs

Gold prices weakened slightly in the Monday-to-Tuesday overnight session, but still found consistent buyers around $1770/oz as overseas equity markets were mixed. The open of cash trading in US markets was uneventful, but shortly after we saw a powerful surge in gold buying that pushed futures prices above $1800/oz for the first time in over eight years; the corresponding rally in spot prices brought gold for immediate delivery to trade above $1780/oz where it set a strong foothold. Silver prices also benefited from gold’s momentum and finally managed to retake $18/oz in the spot market.

The large and sudden rush into gold positions (much of which seemed to be happening at the expense of the US Dollar, which fell on Tuesday) appeared driven in large part by Fed Chair Jerome Powell’s joint testimony with Treasury Secretary Steve Mnuchin before Congress. For his part of the proceedings, Powell leaned into the view that the Federal Reserve remains hopeful that a strong recovery is coming, but at the same time is preparing for a “second wave” of crisis caused by the coronavirus. This kind of rhetoric seems to send two strong “buy gold” signals for investors and money managers. On the one hand, the mouthpiece of one of America’s (ostensibly) brightest and most well-informed economic institutions is warning of more trouble ahead, which sends investors scrambling for assets that offer safety in a storm (like gold.) On the other, the Fed is still committed to reminding us that it stands prepared and willing to not only extend its current mega-push of accommodation and monetary stimulus but to increase it if needed. In doing so, the Fed is essentially guaranteeing that the current ultra-low rate environment-- which drags on the Dollar while negating yields that would otherwise make Treasury paper a more attractive safe-haven investment, making gold all the more attractive to buyers-- will persist well into the medium term horizon.

Taking advantage of its improving environment, gold prices held onto a majority of the mid-morning gains throughout a quieter afternoon for metals, and into the market close.

While gold (and other non-Dollar safe havens) grew out of the Fed Chair’s comments, equity markets carried on their clear preference for celebrating the same promises of continued (and possibly increased) “easy money” stimulus and support from the Fed. Stocks also clapped for Secretary Mnuchin’s considerably less empathic suggestions that (very necessary) support could continue to flow from the fiscal side of things. With enough fuel to ignore still-mounting coronavirus hospitalizations, US stock markets managed to wrap June with a win and their best single-quarter performance in more than two decades.

Wednesday: Profit-Taking and Promising Data Sent Gold Prices Back to Levels of Support

The Wednesday trading session for gold in US markets started with a tremendous amount of selling pressure on the yellow metal; initially from corrective selling and then as a result of positive macroeconomic data that drove a sharp uptick in risk appetite.

With gold prices having reached past an 8.5-year high on Tuesday, it wasn’t surprising to see a notable volume of profit-taking by Wednesday morning. The run of selling was enough to push prices off the recent top, and spot gold was selling for as still-lofty $1780/oz ahead of Wednesday's run of US economic data. First up was the June report from ADP on private payrolls growth, which sent some conflicting signals.

June @ADP payrolls up +2.369M vs. +2.9M est. & 3.065M in prior month (note huge revision from -2.76M)

*Small: +937k
*Midsized: +559k
*Large: +873k
*Goods: +457k
*Services: +1.912M pic.twitter.com/knhdhuSZPe

— Liz Ann Sonders (@LizAnnSonders) July 1, 2020

At the very top, the number of jobs added in June failed to meet expectations-- by a few hundred thousand-- and immediate disappointment at that sent gold on a spastic jump higher. At the same time though, the prior month’s payroll number was revised higher by several million jobs. While it tends towards good news (maybe because it tends towards good news,) it’s important to point out that the kind of wide discrepancies we’ve seen between expected and actual (and then revised) jobs numbers is also indicative of some real issues in gathering and classifying employment data right now. The risk that all this “improvement” could come snapping back is one that any Dollar or safe haven trader should be keeping in the back of their mind.

Moving through the stock markets’ cash open, investors seemed willing to take the good over the bad in June’s ADP number and equities opened with little indication of concerns but not much in the way of upward momentum either. Gold prices continued to revert towards the week’s core support at $1770/oz. Though briefly seeing buyers step back in at that level once again, gold spot fell through support on the release of key data for US manufacturing sector activity which surprised analysts by reporting expansionary conditions for the first time since the start of 2020. As Monday’s preview piece suggested might be the case, this fed risk-appetite across the US markets resulting in a mild lift in equity prices while safe havens including gold and the US Dollar came under pressure. In a constructive signal for gold moving into the summer, the buyers that had failed $10 higher came roaring back at $1760/oz and pushed gold back up ahead of a fairly quiet afternoon of trading that saw the precious metal close above $1770 once again.

Also of note on Wednesday: the release of the FOMC’s discussion minutes for the June 9-10 meeting. You can read our full recap here, but the most useful new information for traders going forward appears to be a general consensus among committee members that clear forward guidance needs to come back as an important tool for the Fed to use in addressing and support markets. Financial markets had little in the way of reaction to the meeting notes, but equities would go on to continue the summer rally.

Thursday: More Blockbuster Labor Market Data Pushes Stocks Higher, but Gold is Holding onto Its Shine

Following a steadily flat overnight session, in the final trading day of the week in the US the gold market has demonstrated that it still enjoys a strong level of support; one that might be used as a platform from which to drive towards $1800/oz in coming weeks. Ahead of Thursday morning’s release of the June Jobs Report the spot price for gold was again under pressure, and the surprisingly strong labor market data drove stock prices higher and gold back down to $1760/oz.

According to the Labor Department’s count, the US economy added a whopping 1.8 million more jobs than expected in June, and the headline unemployment rate fell to just over 11%, also beating expectations. While I’ll point out one more time that there are serious concerns growing around how accurate the data collection is compared to reality on the ground (underlined by the fact that on Thursday morning we saw that weekly jobless claims seem unable to fall below a pace of 1.4 million,) US investors ultimately got the support they were looking for to continue the stock market’s rocket summer.

Stocks rally on record jobs gain, but bonds reflect concern that virus spread could slow hiring https://t.co/7EIuyB9h7R

— CNBC (@CNBC) July 2, 2020

At the time of writing, all major US stock indices are up roughly 1% on the day. Gold, meanwhile, continues to show resilience. After finding support again at $1760/oz following Thursday’s labor market data, spot prices have reflected steady buying through the morning and the precious metal looks likely to close the US trading week just below $1780/oz.

Next Up

As we move into the second half of the year, next week we’ll see if service sector activity can match the rebound in the industrial sector that was reported this week. Beyond that, the data docket is pretty light and so we’ll see how the seemingly inexhaustible bull rally in equities fares when the market news flow is again focused on rampaging coronavirus cases and the US’ simmering trade conflict with China.

Until then, I hope you’ll do you best to stay safe and enjoy your weekends, traders.