GoldPrice.

Happy Friday the 13^th, traders. Welcome to your recap of this week in metals markets.

At the time of writing, gold spot prices are weaker and looking for support around $1490 in order to hope for a strong start to next week.

So, what kind of week has it been?

Gold Priced Languished Below $1500 to Start the Week

Shortly after our Monday preview post went up, gold prices finally gave up the ghost and collapsed through major support at $1500/oz. There was no major market shift or surprise headlines, rather, we just had a fairly low-key Monday afternoon and that along with a generally positive start to the week for the US Dollar and equities markets allowed the risk-on mood of the market to apply consisted pressure to safe-have assets like gold. The only bit of news from Monday night that is worth mentioning a few days alter is that official closing of UK Parliament precipitated by Prime Minister Boris Johnson, pulling Britain (and potentially Europe) another step further into Brexit calamity.

Monday’s reemergent risk-appetite persisted through a similarly quiet Tuesday across global markets. Honestly, this was a little bit unexpected during the Asian and European sessions as both regions saw a steady flow of less-than-encouraging economic data. Still, the majority of gold’s price action on Tuesday wove about in the mid-1490s while silver hung at or just below $18/oz. The shiny yellow metal’s only real excitement for the day came mid-morning in New York as equities briefly made a turn for the worse and gold prices took an unconvincing run at $1500. It was not successful and when stocks and the Dollar regained their footing, as it often the psychology of the charts, the price of gold tumbled even farther to threaten $1485 and fully give up the last five weeks of gains.

That would prove to be the low point for gold this week (so far, at least); as the global commodities market re-opened and through to the start of the Asian trading session buyers slowly stepped into gold once again, driving to yellow metal’s spot value back to and through $1490/oz. With some hindsight it’s fair to assume this was driven by bargain buying at monthly lows, but the general risk-on tone in markets this week still capped gold’s bounce. That sentiment was strengthened in the early hours of Wednesday as reports began surfacing about a few minor olive branches being offered by the Chinese government ahead of planned trade negotiations with the US in October.         

Strong CPI, Positive Trade Headlines on Wednesday Capped Gold Prices

Safe-haven demand continues to boost gold prices in an admittedly choppier European session, as investors and financial institutions started to brace for what they were beginning to think (correctly, as it would turn out) could be a more aggressive ECB move on Thursday than had been expected in recent days.

Ahead of the cash open for US equities, August’s Producer Price Index measurement of inflation (particularly the less-volatile “core” component) outperformed expectations and the Dollar-positive reaction drove gold spot priced back below $1490 temporarily. This wasn’t due to PPI on its own being a particularly impactful metric for the US economic cycle, but rather that it implied a stronger showing from consumer inflation as well, which would go farther to dampening the odds of extra-aggressive easing from the FOMC next week.

Despite another solid day for risk assets on Wednesday, after buyers stepped in at the market open the US session for gold was characterized by steady if not perfectly direct march higher. To some degree, I expect this was driven on by traders and investors looking to take advantage of  “cheap” gold prices either specifically in anticipation of next week’s presumed rate-cut in the US, or more generally out of distrust for this week’s sudden “Everything is going to be OK” sentiment. I suspect there was also a bit of rote technical-driven buying in gold, based on charts like this:

The recent sell-off in #gold has come to a temporary halt below $1,500/oz. as risk appetite picks up. Get your $gld analysis from @nickcawley1 here: https://t.co/3gz3g46KdS pic.twitter.com/UlO764fVbK

— DailyFX (@DailyFX) September 11, 2019

The yellow metal hadn’t quite made it back above a spot price of $1500 an ounce Wednesday evening when its new legs were knocked out by dinnertime headlines that Washington would apply some “good will” in response to China’s moves 24 hours before, and delay (for a scant two weeks) tariffs increases on China that were previously scheduled to go into effect on October 1. The markets this week seemed happy to celebrate positive signals for a resolution to the US-China trade conflict retaining the (well-earned) skepticism about how much progress is actually being made; gold prices only fell as far as $1490 on the news, and the Asian cash-open once again saw buyers stepping into gold positions. By the start of European trading, gold spot was trading back above $1495.

Gold Prices Surged Back Above $1500 with an Aggressive ECB Decision, but Fail to Hold Serve

In a replay of Wednesday trading, the European session brought with it more support and upward momentum for gold prices, as the clock ticked closer to the day’s ECB announcements. The bullish gold sentiment had some added velocity this time thanks to good old-fashioned headline-driven fear as the UK government was compelled to release the findings of its “Yellowhammer” report detailing just how unprepared the nation’s citizens and infrastructure are for a chaotic “no-deal” Brexit. The added safe-haven’t buying out of London was enough to finally push the yellow metal back above $1505/oz in the spot markets ahead of the ECB.

Draghi & Co. of course delivered on that “more aggressive” easing posture that the markets had been bracing for in the days prior: the 0.10% cut to the deposit rate, which pushed the short-term rate further into negative territory, was actually the minimum expected from the ECB; it was the announcement of an open-ended QE program (as opposed to a pre-determined, presumably brief run of bond purchases that would have been preferred by Germany and other core economies) that really felt like the committee was bringing out a bazooka when we expected a  pistol.

There’s a good bit to parse about this move from the ECB, but the immediate impact was a free-falling Euro for a short time in the morning and-- while that does boost the dollar reflexively—the flight to gold as rates fell was a dominant market force and drove the yellow metal in to the $1520 range.

With the US trading machine coming online Thursday morning, gold prices continued to see support, but the headwinds were growing. For one, oil prices had been steadily falling through the week and by this point and come back down to $55/bb as signals continued to build that there may be a supply glut in 2020—this kind of weakness in crude prices often applies some degree of pressure on the broader commodities complex, including gold and silver. More notably: August’s CPI data was indeed a Dollar-boosting beat of expectations with core inflation growing at a 2.4% annualized pace. (Yes, the headline number was actually a mild disappointment to expectations, but that can be written off as the result of suppressed energy prices this summer.)

Ultimately, those pressures would overtake gold’s Thursday morning up-trend as the yellow metal seemed to over-extend itself reaching for a toehold at $1525 and began rolling downwards through the equity markets’ open as short-term traders called a top and began selling their gold positions. The selling briefly looked like it could become a free fall around 10am EDT as reports surfaced that the White House was considering a “temporary” deal to strike with China that could be agreed upon much earlier than expected. To no one’s surprise, of course, the administration wasted very little time in playing to form and publicly dampen the rising trade hopes and so the safe-haven sell-off slowed back down to an orderly pace.

Despite a few sputters of life as gold spot prices slid back near $1500 around lunchtime, that previously strong level of support was ultimately broken, and gold would trudge sideways across Thursday afternoon and indeed through a quiet Asian trading session.

Gold Prices Stumble into the Weekend at 5-week Lows

Friday’s trading has been marked by one more surge of Dollar strength and risk appetite to finish the week, and the usual Friday profit-taking. While the safe-haven impulse in Europe seems to remain strong and did in fact push gold prices back above $1505, the yellow metal’s chart turned downward once again in the New York morning as the Greenback surged along with US Treasury yields, and another raft of surprisingly strong US economic data tipped equity markets toward another day of gains.

Retail sales numbers for August doubled the expected rate of monthly growth and included an upside revision of July’s data. The market reaction was enough to drive gold back below $1500/oz and, though they made an attempt to recover, prices were battered further by a strong read on consumer sentiment in the US. It’s also worth noting that silver prices have finally joined gold on the struggle bus, and end the week fluctuating around that important support level of $17.50/oz.

Next Up

The selling that is leading us into the week’s end feels, if I’m being honest, a little over-done and too optimistic about the US and/or global economy. True, the general risk-seeking mood of the markets this week was always going to put a dent in the gold chart—particularly as that chart has been crying out for a real correction for a couple weeks now. But any positioning around the positive developments in the US-China trade saga this week has a kind of gullible tone to it: to me, the concessions made by the Chinese feel like a late-hours attempt to avoid all out trade war, while the US’s “good will gestures” sound to me like a bully saying “I’m not going to beat you up and take your lunch money…yet.”

To say nothing of next Wednesday’s FOMC meeting, the 0.25% rate cut that is generally priced-in at this point (yes, even in the face of this week’s solid economic data), and the potential for more knee-jerk, Twitter policy statements/threats when Donald Trump doesn’t get the negative rates that he’s been asking for—any or all of which have the potential to roil equity and debt markets (again.)

All of that (which is not investment advice) aside, we do have the FOMC meeting ahead of us on Wednesday, which will include not just a rate decision but an update of the committee’s economic projections. We also have the start of the next round of data on US manufacturing, to see if the old workhorse can string together consecutive months of growth.

For now, traders, get out there and enjoy your weekend. I’ll see you all back here on Monday for a detailed look at the week ahead.