GoldPrice.

Welcome to Friday, traders.

We end the week in gold markets in a stronger price environment than we began with on Monday, setting the stage for prices to make another move towards $1350/oz next week, should the FOMC meeting provide the right kind of push.

At time of writing, gold is trading with solid strength just below $1303.

So, for gold markets, what kind of week has it been?

Inflation

Our key focus this week was on the February data set for CPI inflation released on Tuesday morning; in particular, the year-over-year comparisons for the “core” inflation number as well as the headline number. Both marks delivered 0.1% below the broad market expectations that both annualized numbers would be unchanged from the prior month.

Our reasons for flagging this week’s CPI release as particularly important has less to do with the inflation data’s immediate impact on metals and currency prices, and more to do with how it sets up expectations for next week’s FOMC meeting followed by the usual statement and press conference, as well as the committee’s quarterly Staff Economic Projections.

Yep, there we go. Core CPI only 0.11%, making the y/y 2.08%. Just when pundits were finally thinking inflation could be a "problem," and stopped forecasting weakness...we get weakness!

— Michael Ashton (@inflation_guy) March 12, 2019

Seeing that annual inflation has remained effectively flat since the Fed announced the shift in their stance to a “pause” on rate hikes all but eliminates any likelihood that the FOMC in next week’s meeting will hint at returning to rate hikes sooner than later. A majority of the committee’s participants, including Chairman Jerome Powell, have indicated that inflation will be the first guide post for determining their next action (or continuing to hold.) With no immediate signs that inflation in the economy is overheating, the Fed probably sees no reason to raise interest rates above the current level, which many participants are now describing as neutral (or within the “neutral range.”)

While the primary use of Tuesday’s CPI data was for forecasting into next week, it did have the effect of creating more immediate and constructive support for gold prices. Gold by the ounce had started the morning maintaining strength after rebounding from last week’s sell-off, and the flat-ish inflation numbers added a mild tailwind to the yellow metal likely on the assumptions discussed above: the inflation data dented the already low odds of another rate hike in the first half of this year.

Later in the afternoon on Tuesday, gold prices would use the support/strength bolstered by the CPI release to spring back above $1300/oz as a measure of European investors’ risk-off positioning ahead of a series of Brexit-related votes in the UK.

BREAKING: MPs decisively reject Theresa May's revised Brexit plan by 391 votes to 242 https://t.co/M4FEAsomnW https://t.co/qBrj5qSo0V

— Bloomberg Brexit (@Brexit) March 12, 2019

Now that the tenor has been set for next week’s FOMC meeting, but before we turn our eyes towards next Wednesday, let’s take a brief look at the other macroeconomic happenings from this week as they pertain to metals markets.

Monday Retail

Monday morning’s retail data was a mixed bag, as the January number (keep in mind, we’ve still been catching up on retail data delayed by the government shutdown earlier this year) was slight better than expected but December’s number was revised even lower. The dollar-weakness narrative prevailed in the end and after a brief mid-day flirtation with $1290 (which now looks to be decent support) gold began the week’s move to $1300 by that afternoon.

Wednesday PPI and Durables

February’s more manufacturer-focused inflation data, the Producer Price Index, arrived in-line with Tuesday’s CPI, confirming the narrative heading into next week’s FOMC meeting and cementing gold-price strength above $1300/oz. There was better news for US economic growth as January’s Durable Goods numbers were solidly above expectations on Wednesday as well, but even that failed to break the clear downward trend for the US Dollar this week.

Thursday

As the DXY chart above shows, there was a slight rebound of off the floor for the US Greenback this week on Thursday that temporarily knocked gold from its position north of $1300. From the viewpoint of a metals and currency desk, I think there were a handful of factors that combined to create that market action:

• Import Prices, on a year-over-year basis, actually fell again in February’s data which may have served to decrease pressure on the US delegation to secure a lasting trade peace with China. The broad effect (or one broad effect) of this ongoing tension is a weaker Chinese currency and corresponding USD strength.
• Weaker Chinese data, which passes through as a similar input into US Dollar pricing.
• Less tangibly, it’s reasonable to believe that even independent of these two developments a number of investors stepped in at the lowest levels on Wednesday evening to buy a cheaper Dollar.

While it’s certainly constructive for gold market growth and metals/currency market volatility trading in the near- to medium-term, I don’t take any pleasure in discussing the strong rebound in gold prices last night after the Thursday session’s sell-off; the initial spike back towards $1300, above which gold spot prices currently sit, was in my mind almost certainly catalyzed by the horrific reports of terrorist violence in Christchurch, New Zealand.

Independent of the reasons for the initial move, gold’s re-acquisition of $1300 was further solidified early this morning with another dismal vintage of the NY Empire State Manufacturing Index. Today’s downside miss suggests that last month’s rebound was more of a dead-cat bounce, etching more deeply our image of a slowing manufacturing sector in the US. At the time of writing, even a more positive report on consumer sentiment from the University of Michigan has failed to put wind in the Dollar’s sails or a dent in gold prices.

So we head into next week with gold once again richer than $1300 and turning our heads towards a very important FOMC meeting on Wednesday. From there, we should be able to start roughly charting the course for both gold and the US Dollar into the second quarter of 2019.

Until then, I hope you’ll do your best to enjoy your weekend and to take care of one another.

I’ll see you back here on Monday, for a look at the week ahead.