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.

At the end of a turbulent week that saw the return of a gold’s sensitivity to the US Treasury market, the yellow metal’s spot price has fallen significantly from Monday’s opening levels.

So, what kind of week has it been?

Gold had been enjoying some upward momentum early Wednesday morning, but it was the release of ADP’s data on private payroll additions for the month of July that highlighted the return of a sensitive link between gold’s price action and the movement of US Treasury yields.

• For the yellow metal, the immediate reaction to Wednesday’s ADP missing severely wide and low of the expected mark was to bid higher, above $1820/oz; At the same time, Treasury yields fell sharply as investors also bought into US Notes and Bonds. (The benchmark 10-year Note’s yield collapsed below 1.14%.)
• Because both moves—investors buying into gold and US Treasuries, sending gold prices higher on demand and Treasury yields lower—are traditional “risk-off” trades in reaction to negative economic data, and because both kicked into gear at roughly the same point (just post-ADP,) it would be difficult and not very useful to argue that one led the other. What we can assume, though, is that both signals amplified each other in a feedback loop, and so gold’s initial rally following the ADP data was exacerbated by yields crashing at the same time. But the relation that was a boost for gold initial was about to turn the tables on the yellow metal.

We were always likely to see some kind of pull-back from gold’s initial rally, given how overbought it seemed. Just before 9:30am EDT, gold spot prices peaked for the week at $1830/oz. US markets in general were trading off-balance and rattled from the moment markets opened, and the biggest mover to start the official business day was US Treasury yields, which suddenly ripped higher from their deep lows.

Whipsaw Wednesday: 10-year yields surge 7 basis points in less than an hour as Fed Vice Chair Clarida indicates that a 2023 rate hike is consistent with the central bank's new framework and says he's been surprised by the move down in yields. https://t.co/9yo1yN5Bw1 pic.twitter.com/dKIGiOxHmL

— Lisa Abramowicz (@lisaabramowicz1) August 4, 2021

Under pressure from the same inputs that goosed sovereign yields higher—in a move magnified again by bond prices heading sharply in the same direction—gold priced plummeted even faster than they had risen pre-market. The yellow metal traded as low as $1806 in spot markets before the morning’s freneticism slowed and allowed a modest recovery.

• With the bond market also calming, gold was able to consolidate positioning. Prices traded steadily just above $1811 through the rest of Wednesday’s session, and into Thursday morning.

The catalyst for the midweek excitement was a prepared speech on US monetary policy from Fed Vice Chair Richard Clarida, even though nothing the Vice Chair had to say was, on its face, terribly special.

• In his remarks, Clarida said that the stronger than expected recovery that the US economy has experienced to-day, in his mind, puts us on a trajectory that implies interest rates being raised by the Fed in 2023.
• The surprising bond market reaction, and gold’s as well, is what we might expect from a key FOMC member suggesting an accelerated timetable for tightening monetary policy.
• True, Clarida’s picture of the future predicts interest rate hikes earlier than the Fed was projecting at the start of this year. But it is broadly in-line with the committee’s current projections.

There were no impactful data points or headlines on Thursday morning, but Wednesday’s pattern repeated at the start of open trading in the US markets: Another push higher in Treasury yields sent gold prices dropping; This time, gold fell all the way to support at $1800. After a minor rebound the chart would flatten out through the rest of the day. A quiet overnight session saw the metals prices under gentle but consistent pressure as yields crept higher, setting the stage for gold’s sharpest, most painful slide of the week.

Proving that the activity following the private payrolls number on Wednesday was the first in a series of strong overreactions this week, Friday morning’s July Jobs Report came in comfortably above expectations, signaling continued improvement for the current economic recovery.

• Not only did July’s non-farm payrolls number far exceed the projections, but the prior month’s count was revised higher by nearly 100K.
• Headline unemployment slid all the way to 5.4% in July.

With gold already vulnerable, having drifted back to a loose grip on $1800/oz overnight, the surge in UST yields that followed the Jobs Report crushed gold’s support. Investors pivoting out of the yellow metal led to prices shedding $20/oz within the first ten minutes; While the slide mellowed from there, it continued well into the start of Friday’s cash trading before gold finally found buyers to step in just above the $1860/oz level, where markets appear to be ending the week’s activity.

Although I don’t typically put a lot of stock in “technical levels” being an important indicator of a commodity’s near-term price movements, a well-rounded trader does need to understand that many people do, and sometimes it’s enough people to actually impact the market.

With that in mind, it’s worth pointing out—and keeping an eye on over the next few weeks—the peak for gold this week before prices pulled back and then tumbled, around $1830/oz, roughly aligns with both the 200- and 50-day moving average for the yellow metal.

• Regardless of whether or not it’s logical, traders will want to watch and see if there continues to be strong selling pressure near both (or either) of those levels.

With that brief aside into technicals done, this is what appears to be the state of play for gold after this week:

• The US bond market, especially viewed through the lens of the benchmark 10-year yield, seems to be exceptionally sensitive to key labor market data (see: ADP, Friday’s jobs report,) and policy commentary from key Fed officials (see: Clarida’s remarks mid-week.)
• It’s understandable that yields would be reactive to anything that suggests concrete changes to the path of Federal Reserve interest rates; What’s notable here is that the Treasury market appears to be making wild, knee-jerk moves based on the first impression of new data or headlines, and then failing to retrace much of those moves after investors get a chance to actually parse and analyze the new information.
• This is an issue for gold in the near-term because however sensitive the bond market has been to this data, gold prices appear doubly sensitive to movement in bond yields It’s an environment that may lead us into a more volatile period for gold prices.

The one optimistic suggestion for gold that we might be able to dig out of this: Following Friday morning’s strong Jobs Report and stronger rally in Treasury yields, the US 10-year yield has repeated tried and failed to move back above 1.3%.

• If there’s a ceiling on how high yields can move in the near-term, that could imply a floor for how far gold prices can fall in response.

The next question is, will inflation data impact Treasuries and/or gold in the same way that major labor market data has this week? We won’t have to wait long to find out, as next week’s key economic release is an update CPI report due Wednesday.

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.