GoldPrice.

Happy Friday, traders! Welcome to your recap of the week in gold markets.

Gold prices are markedly higher this afternoon following an explosive week of trading, driven by the Fed’s extremely dovish June meeting and the escalation of tensions around the Persian Gulf.

So, what kind of week has it been?

A record setting week for many key assets, most importantly for this post: the return to 5-year highs in gold prices. Also, a week that we can break pretty neatly into “before the Fed meeting” and “after the Fed meeting.”

Without further ado…

Pre-FOMC

Most of Monday’s action was finished, even in the US markets, by the time our weekly preview went up. Gold prices would trade firmly beside—if just below—the $1340/oz line throughout the day. NAHB’s Housing Market Index was a slight disappointment later in the morning; though certainly not as deep as that of the Empire State Manufacturing Index to begin the week, both data points had the luck to come just before the start of this week’s FOMC meeting. Still, it had been a relatively quiet Monday heading into the Asian open for Tuesday.

It's worth mentioning that on Monday we also saw last week’s flare up of US-Iran tensions around the Persian Gulf ratchet slightly higher as the US, backed by what it says is further proof of Iran’s hand in damaging oil tankers in the gulf, announced it would be sending an additional 1,000 troops to aid in ongoing naval patrols of the area. For as long as this conflict remains active it will provide some level of consistent support to safe-haven assets like gold.

Asia’s Tuesday session was uneventful for gold markets. Some gold buying would start early in the European morning, and then really take off following comments by ECB President Mario Draghi. Delivering on the market’s expectation of dovishness, Draghi made it clear that the ECB has the ability and the will to either cut interest rates again or re-expand its program of quantitative easing should either become necessary.

Draghi’s pledge opens the door to far more powerful policy action than officials had previously signaled was even possible https://t.co/NeEYADN8qJ

— Bloomberg Economics (@economics) June 19, 2019

The comments pulled the floor out from under the Euro which would fall below 1.12-support for some time, and while it didn’t trigger an immediate spike on the gold charts it did strengthen support at $1345/oz from which gold’s spot price would continue to rise throughout the early morning hours in the US.

By the time New York-based traders were coming on-line for the day, prices for the yellow metal had settled slightly above $1350 in spot markets, mostly on the pleasant promises of central bank easing in the days, weeks, or months to come. The trend would break with the morning, however. US equities rallied hard at the cash open and the US Dollar index moved to a two-week high, as markets celebrated confirmation from the White House of a planned Trump-Xi meeting during next week’s G-20 summit in Japan. Personally, as with all things related to “plans” around this growing trade conflict, I’m unconvinced of this being anything other than headline-buying and equities may well have tumbled again by this time next week as the meeting either doesn’t happen, or (more likely) produces nothing of substance.

My own handwringing notwithstanding, as buyers stepped into equities their selling counterparts flooded the gold market, slamming prices down near $1340/oz. The yellow metal would take a hard bounce mid-morning, make an unsuccessful attempt to regain a hold above $1350, and by lunch time spot prices had settled into a respectable range of $1345-47 in which to move sideways for the rest of the day.

Fed Day

As we covered in Wednesday afternoon’s FOMC recap, the committee delivered as dovish a Fed Day as they could manage—or at least as dovish as they could stomach—without actually announcing a rate cut. Gold prices took off immediately alongside US treasuries and exuberant equities markets. While it looked like the surge was sputtering out at resistance somewhat, spot prices for the yellow metal made a late-afternoon run just in time to close at $1360/oz.

Post-FOMC

Often, following an impactful Fed Day, we’ll see traders in the following day’s Asia session mute out some degree of the gold market’s enthusiasm. This week, that was definitively not the case. Once a majority of Asia-seated trading operations were online for Thursday (around 9pm EDT) gold prices resumed their bombastic surge, trading as high as $1386/oz for immediate delivery before moderating a bit and settling at $1380, gold’s richest level in 5 years.

Throughout the European and US-based trading days, the gold charts would show an orderly if slow-paced march to a new perch just above $1390-spot. In the world outside and around the gold market, different correlated assets and narratives continued coalescing into a prime example of what has historically been a bullish environment for gold. US-Iran tension around the Persian Gulf, this week’s dominant geopolitical story, clicked a few levels hotter as reports emerged on Thursday that Iran had shot down an unmanned US drone. In a less dramatic development—but not without its own market impact—the Philly Fed’s assessment of the US manufacturing sector was even more dour than Monday’s Empire State Index, printing a headline number of near-zero.

These headlines, the Fed’s apparent preparation for a rate cut, and the dovish turn by the ECB’s Mario Draghi earlier in the week, in turn fostered the exact market environment one would expect: US equity markets were reaching records highs; crude oil prices rose higher as a result of Middle East tension while the dovish bent of major central banks boosted the commodities complex as a whole, and the US Greenback weakened as its major counterparts like EUR strengthened. No surprise, then, that gold and silver prices would make at least one more momentum push higher.

Much like the start to Thursday trading, that big push came again at the start of Asian trading for Friday (Thursday evening, stateside) as gold spot prices broke through another major psychological line at $1400 on its way to trading north of $1410 for a time and setting a new 6-year high mark for pricing. It would be safe to assume safe-haven buying was again a prime driver in the move higher, amid later-confirmed reports that the White House had earlier approved a retaliatory strike on Iranian targets, but later rescinded the order.

Breaking News: President Trump pulled back from strikes against Iran late Thursday, hours after approving them in retaliation for the downing of a U.S. dronehttps://t.co/rXVmi2rv4i

— The New York Times (@nytimes) June 21, 2019

The trend would shift once Europe-based traders fired up however, as a $14-handle likely just looked to juicy for short-term traders with long gold positions to pass up and profit-taking ahead of the weekend kicked in. The selling pressure was fairly strong, likely triggering some large stop orders, and pushing gold prices as low as $1386 before a rebound that has seen mostly sideways trading stateside, pinned around $1395/oz.

So, we head into the weekend weary and wary. I suspect that, following the early morning sell-off, a line of resistance will start to form at $1400 on the spot chart for gold. If that’s correct, then traders will want to watch early next week for any attempts to break back above that resistance; depending to some degree on the action in correlated assets, any failed attempts to break-out higher again could signal a corrective pull-back to $1380 or lower-- the key caveat to that being the unknown next headline around this week’s US-Iran tension. Typically, at this point on a Friday, following the end-of-week cash-out on long positions, we can count on fairly quiet markets. Today though, we can’t rule out a reverse move and some buying into the Friday close, as traders and investors position themselves for any heightening of the conflict over the weekend. At the very least, the current state of play in the Persian Gulf will limit the downside of any technical-based selling in gold as the presence of safe-haven buyers will persist.

Next Up

With that uneasy feeling, we head off into the weekend. I think we’re all hoping for a slightly more low-key week in the markets, and the macroeconomic calendar sets up well for that possibility. On the docket will be more housing data, the latest report on durable goods orders, and some closely watched public comments from Chairman Powell and other Fed officials. That said, the primary market risks next week are likely to still be headline driven as we keep one eye on the Persian Gulf and the other on the planned meeting of US and Chinese leaders at the G-20 in Japan.

Enjoy your weekend, traders, and rest up! I’ll see you back here on Monday for a look at the week ahead.