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.

Despite quickly losing altitude earlier on Friday, gold prices are closing this week’s trading moderately higher than Sunday evening’s opening bids.

The yellow metal has given back large part of its post FOMC gains, but the central bank’s commentary this week suggest that the investing environment through the end of 2021 will remain supportive of gold prices.

So, what kind of week has it been?

For many market participants, this week turned on the FOMC meeting and announcements mid-week. This was particularly true for those in gold markets: The immediate reaction to “Fed Day” pushed spot prices for the yellow metal away from support at the $1800/oz that was threatening to break earlier in the week.

As expected, the Fed left the most impactful tools of monetary policy unchanged again this month. It was potentially meaningful shifts in the FOMC’s post-meeting statement and in Chair Jerome Powell’s press conference that affected market action for gold, US Treasuries, and the US Dollar.

The FOMC acknowledged for the first time that the US economy has made notable forward progress towards the Fed’s goals that the current low interest rate regime is meant to foster, but with the important caveat that the progress is not yet “substantial” enough to warrant a tightening of monetary policy either by tapering the pace of the Fed’s asset purchasing program (at $120B/month,) or even discussing interest rate hikes.

• None of this comes as a surprise, as Powell and several other influential FOMC members have made the most of their opportunities to refute the suggestion that they current spike in inflation—which they see as being largely transitory, still—is pressuring the Fed to act sooner.

What may have been more unexpected was small nuances in the language of how the Fed will continue to assess the progress of the US economic recovering from its current condition to the mark of “substantial forward progress” which would compel the central bank to act.

In simply saying that they will track continued progress at future meetings—plural—the Fed’s statement has many analysts and investors reconsidering whether an adjustment to forward guidance at the very next meeting (at the end of August, at the Fed’s annular Jackson Hole symposium) is as likely as it looked at the start of this week.

• And, because we know this Fed is desperate to avoid a repeat of 2013’s “taper tantrum,” delaying the initial use of new forward guidance about tapering almost certainly means delaying also the first taper itself. Bottom line: the Fed’s language on Wednesday encouraged markets to presume that the current phase of super loose monetary policy will not only not be curtailed by recent jumps in inflation, but may well extend (even a month or two) longer than projected.

It’s also worth noting that, as Chair Powell expressed to reported on Wednesday, the Fed is not immediately concerned about the (otherwise worrying) surge in new coronavirus cases and hospitalizations in parts of the US. With vaccinations now a factor and the diminishing economic impact of each previous “wave” under consideration, the Fed seems cautiously optimistic that this will not become a major downside risk for the recovery.

• Of course, it will be vital in the next several weeks (and again in in the winter) to track the Fed’s view on this, as any signals that Powell & Co. are becoming more worried about Covid again will have implications on monetary policy.

Looking back at the market reaction to the Fed: As we pointed out at the top, gold prices immediately moved higher on the FOMC news, rising to $1810/oz through Powell’s press conference in the afternoon. Following a brief pause, the start of overseas trading on Wednesday evening saw Asian markets get their first opportunities to trade the news; The second pop added another easy $5/oz or so to the yellow metal’s spot price.

• European markets followed suit and gold moved steadily higher through Thursday morning before reaching a high for the week above $1830/oz.
• Coinciding with—and lending some additional fuel to—gold’s Fed Day rally was a sharp pull-back in US Treasury yields and in the trading value of the Greenback in general as the Dollar fell against most of its major trading partners.
• Equity markets have largely held their ground this week, even through Wednesday’s FOMC. There have been shallow down days for the major indexes scattered throughout, but US stocks are still on track to close July in the green. Overall, markets seem happy to celebrate the (unsurprising) reassurance that the Fed’s massive flow of monetary stimulus is here to stay. With interest rates—and, therefore, yields—still likely to stay pinned to the floor, investor interest in gold should be encouraged, as we saw this week.

Also of note on the economic calendar this week, we saw the first calculation of GDP growth for the US economy in Q2, and the release of the Fed’s measurements of consumer inflation for the month of June.

• Second-quarter GDP was strong, but still noticeably below consensus estimates. While this could’ve been a concerning signal for the health of the US recovery, a closer look at the reality behind the headlines numbers is more encouraging. It appears that growth in Q2 was impinged somewhat by an inability for supply (as a result of tangled and slowed supply chains) to meet resurgent consumer demand. This implies that, once supply chains manage to iron out the kinks, we may be in for another strong surge in GDP down the line (all else being equal.)
  
  • Markets generally had little sustained reaction the GDP print, taking it in stride. Gold prices were relatively flat in Thursday’s US trading session, holding strong just below $1830/oz.
• The market reaction to Friday morning’s inflation data has been less kind to gold. The Fed’s PCE metric for “core” inflation came in cooler than expected, but still hot at 3.5% year-over-year. It seems that the markets’ reaction to Wednesday’s commentary from the Fed had pushed the boat out a bit too far, especially with regards to how far the US Dollar slid mid-week. Following the PCE print, pre-market, the Greenback began strengthening immediately and has continued to rise throughout Friday afternoon. At the same time, gold prices have been sliding for most of this session.

The rising Dollar has certainly been a factor in weaker gold prices to end the day, but so too has end-of-month profit-taking and repositioning. Still, the yellow metal is poised to close the week at a healthy premium to Sunday night’s pricing; And with the Fed recommitting to its dovish monetary policy for (at least) months to come, next week will be another opportunity for gold to consolidate support above $1800 and look to rally higher in Q3.

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.