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.

Gold prices, much like a many of the US stock markets’ biggest “growth” bets, have been roiled this week by a strong rally in US Treasury yields which was amplified midweek by the release of discussion notes from December’s key FOMC meeting. Unlike those stocks, however, at the tail end of this week gold is putting in an unexpectedly strong performance—perhaps a risk-off play following disappointing labor market data? —with an eye towards regaining a key level of support before we get too far into January.

So, what kind of week has it been?

The market had consistently demonstrated strong buying interest for precious metals amid the bond market selling that was so prevalent at the start of the week, but the FOMC meeting minutes released on Wednesday afternoon turned out to be a direct-injection for rocket fuel for climbing Treasury yields and gold’s support finally broke, hard.

As we’ll get to shortly, the argument can be made that there was very little that was unexpected in the release of the Fed’s discussion notes from the December meeting but it was nonetheless covered as a “hawkish surprise.” Financial markets, especially in the US, reacted accordingly. The US stock markets buckled while US Treasury yields rallied on investors’ bets that interest rates will be rising sooner via the Fed; The benchmark yield on 10-year Notes, which was already having a strong week, punched through 1.7% and returned to the higher levels last seen prior to markets and the wider world becoming aware of the Omicron variant of Covid. Gold was unable to balance such a surging headwind, and spot prices fell precipitously once the FOMC minutes hit.

Before markets closed the Wednesday session, gold had again found some healthy support above $1800/oz and it looked as if the yellow metal might have found a floor as markets took a breather. However, the Treasury bond sell-off that the FOMC release had kicked-off quickly spread through the sovereign debt markets of the developed world, and as Asian and European markets saw yields rallying in-kind, gold’s chart collapsed again, this time through $1800 before eventually finding support in the neighborhood of $1790/oz.

What was the suddenly hawkish turn, revealed in the FOMC minutes? Well, there really wasn’t much of one, given that we knew already (from the announcements that followed the meeting these notes pertained to) that the central bank was motivated by stronger labor market signals and stubbornly high inflation to accelerate the taper process and bring the US economy closer to a rate-hiking cycle faster. What news coverage and analysts seems to have latched on to this week is signaling from the FOMC discussion that the committee could be inclined to also initiate a reduction of the Fed balance sheet. Whereas “the taper” is the central banking ceasing to add to its massive holdings (and it generally agreed to have a tightening effect on the economy,) allowing purchased assets to “roll-off” would mean actively shrinking the Fed’s balance sheet. There is much less of a consensus on whether paring-down the Fed’s holdings serves to tighten or loosen monetary conditions, but it’s clear that financial markets for this week have interpreted it as possible tightening in the near future—hence the aggressive reaction to a “hawkish” signal. Whether this perception remains a part of investors’ planning and positioning for the first months of 2022, we will have to see.

Interestingly, markets have—for the most part—had a much milder reaction to the arrival of another disappointing Non-Farm Payrolls number on Friday morning. Whereas the surveyed consensus had expected a rebound from November’s let down, especially after a strong showing from ADP’s data on Wednesday (despite repeated reminders from the like of us and many others that there is no reliable directional correlation between ADP and the same week’s NFP,) the number of jobs added to the US economy for December’s report was even lower (199K) than the month prior (revised to 249K.)

In response, prices for US Treasuries took another a nosedive and sent yields higher again. This time, the rally appeared to put in a top when significant resistance we discovered around 1.8% on the US 10-year. Outside of the bond market, investors’ reaction to the NFP miss was been subdued: US stocks are heading for a losing session and a losing week to kick off 2022, but of the three major indexes only the NASDAQ (which is particularly sensitive to rising yields) is off more than 1% on Friday. Gold prices, meanwhile, seemed to endure the post-NFP surge in Treasury yields. Spot price held relatively firm at $1790/oz and (at the time of writing,) as the 10-year yield pulls back a bit from 1.80% the yellow metal is making a slow but steady climb above $1795.

Assuming Friday afternoon’s markets close with typical end-of-week calm, the first heat check for gold will come quickly when global trading re-opens on Sunday evening and then in the US markets Monday morning; At those turns we’ll look to see if this week’s elevated sovereign yields stay in place (and if they do, can the precious metals keep a grip on current levels throughout?), or if there’s a corrective rally in bond prices (which could offer gold a strong tailwind.) On the data front next week, the key item will be an refreshed look at consumer inflation levels in the US.

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.