GoldPrice.

Happy Friday, traders.

What kind of week has it been?

A week of highs for gold price, certainly. (And palladium!)  A week of lows elsewhere, certainly. A week of uncertainty…certainly.

There’s been a lot to talk about this week, so let’s jump into it.

Trade Talks, Trump’s Tweet and Tory Troubles Light A New Fire Under Gold-Spot

I think there were some concerns about gold languishing for another week in the low $1220s as the week began. Equity markets and the DXY were having a healthy Monday morning, and why not? Both parties involved in the Trump/Xi dinner over the weekend seemed to feel like it was a productive meeting, and the President was making public claims about pro-US agreements that had been made. You’d be better off putting your money into soy beans than into precious metals, it seemed.

Well, by Monday afternoon the shine was already coming off as Trump’s claims of progress seemed to exist in a vacuum without any corroboration, and by the time the White House’s trade team was making the rounds on Tuesday trying to walk back some of those boasts the stocks sell-off had already begun in earnest.

"It doesn’t seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality." - JPM trading note

— Carl Quintanilla (@carlquintanilla) December 4, 2018

The sharp downturn in equities, alongside some historically negative headlines coming from Brexit negotiations put another boost into gold-spot, driving yellow metal north of $1240/oz where we’ve seen it continue to challenge technical resistance levels at $1242 and $1243. After a market pause for a day of mourning President George HW Bush on Wednesday, the hard pressure on equities resumed and, despite a bounce of the lows to end Thursday trading, is continuing so far this morning.

The sell-off in global stocks deepened, leaving U.S. shares mired in the steepest two-day slide since February https://t.co/43CvHdlL2Z pic.twitter.com/LyN6wf3gBd

— Bloomberg (@business) December 6, 2018

While we still have a December rate hike ahead of us to put some life into the stock market, analysts seem to already be piling into the gloom and doom patrol, with Goldman Sachs and JPMorgan both calling for equities to have a rough go of things in 2019.

Inverted Expectations

Rapidly collapsing hopes of an end to the US-China trade conflict and a stumbling US equities market are not the only thing that has been weighing on investors minds this week and, it seems, tipping many of them to add risk-averse gold positions. By midweek, we had seen an inversion of 3s5s and 2s5s curves on US Treasury yields. While we have yet to see an inversion of the all important 2s10s curve (widely accepted as the harbinger of a coming recession,) that gap is at its most narrow since 2007 as we see the 10-year’s yield trading at three-month lows ahead of December’s expected hike in the short-term rate. These developments have traders peaking around the corner for other recessionary markers, and just like concerns about recent stock market weakness are driving some new safe haven demand for gold.

ISM PMIs: Last of The Good News?

In terms of US economic data, the ISM’s PMI data for both the manufacturing and services sectors were the only positive independent reports we received. The manufacturing number came in well above expectations (59.3 v. 57.5) and in fact retraced the majority of October’s surprise drop. Service sector PMI was also stronger than anticipated, and relatively level with last month’s report.

The UK’s “Meaningful” Mess

The final week before the UK’s scheduled “meaningful vote” on December 11, in which the House of Commons is set to vote yea-or-nay on both the legal-binding declaration of Brexit and the “Future Framework” of a proposed UK/EU relationship, the details of which are less than set in stone. As we come to the end of this week, it seems all but certain that PM Theresa May does not have the votes to get across the line on Tuesday. Should that be the case—and it’s worth pointing out here that speculation has increased over the last 24 hours that Her Majesty’s Government might pull the vote entirely—we can expect to see an initial surge of uncertainty and risk-off maneuvering in the markets as we move deeper into uncharted waters in the whole mess. I suspect that strongest impulse in precious metals markets will be to bid up the price of gold and silver, though there could be some dampening input as well depending on if the Euro falls as the Pound is expected to in that situation which would increase dollar strength across the board including against gold-spot.

While it’s expected to inject some volatile trading into markets, I’m not expecting moves with the same severity as the Brexit vote in 2016. The hard deadline for Brexit is March 29, so the UK government (in whatever form it takes) will still have over 100 days to get some kind of agreement in place; the relatively small dose of chaos that will result from a failed or cancelled vote next week could be enough to spur some 11^th hour compromising to get things done.

OPEC Cuts

West Texas crude has managed to float above that $50/barrel mark for the week, as reports are out today that OPEC and its partners (namely Russia) have agreed to a production cut of 1.2 million barrels per day.

After this week I think I’m going to be less concerned with tracking crude pricing as it relates to gold-spot, in the short term. In the midst of the yellow metal’s week of strength, we saw WTI yesterday fall a bit and re-test its support at $50, as markets showed some concern about OPEC failing to reach an agreement on day one of the conference. My big takeaway from that trade is that it didn’t seem to put a dent in gold’s run, and so I think the narrative drivers for gold will outweigh its correlation with oil in the short term. As always, I reserve the right to be wrong.

Examining Employment

Setting the table ahead of the big dog NFP number, the print on initial jobless claims rose for the third consecutive week. It’s still nothing to get overly concerned about on its own, but I’ll argue that as other US economic data continues to soften around us and the stock market falters, we’re going to need to start seeing more positive data to keep market sentiment buoyant, rather than the thinking of the last few years during which we’ve been able to shrug off some red ink here and there. Gold-spot got a $5-6 bid out of the surprise, taking the going rate north of $1240 for the first time since July and further underlining jobless claims’ position as data to watch as we end the year.

This morning we got the “Jobs Report” for November. While the headline NFP number landed with a thud (155k vs. 198k expected,) the other important data points—3.7% unemployment, and a 3.1% uptick in average hourly earnings YoY—came in right in line.

disappointing jobs report "Enough to give the Fed more caution about their current trajectory. Not bad enough to get the 'recession' drumbeat going." - @TFMkts

— Sara Eisen (@SaraEisen) December 7, 2018

I think the view that November’s jobs report is broadly supportive of the Fed’s short- to medium-term views in spite of the nasty downside to the jobs added number is supported by the reaction in the gold market: $1245 is a nice mark to hit—it breaks the lines of anticipated resistance at $1242 and $1243 and puts in a high-point going back to the summertime—but it’s also “only” a $5 pickup from where the market was trading just before 8:30am EST, and a little more than $1 above Thursday’s top. That’s certainly in contrast to the $10+ move I was anticipating we could see if the number came in as low as 175k to say nothing of the real result of 155k; I think you can mostly attribute that to a positive reception of those static unemployment and wage growth numbers.

Next Week’s Narratives

As gold is set to close this week at the highs going back to summer, next week looks to be dominated by three important macro stories:

• The continued weakness (or returning strength[?]) of equities markets in the US and abroad.
• Whether or not the UK’s Brexit vote takes place on Tuesday; and what follows.
• ECB meeting: have this week’s equities slump and a weak run of recent economic data changed Draghi & Co’s outlook on the European economy? Or will they still announce an end to QE purchasing, as has been widely anticipated.

Those will be the questions dominating my attention to start next week, where we’ll also be making note of some key economic releases ahead of the FOMC’s December meeting: PPI, price inflation and retail sales.

That’s all for an eventful week. Get some rest and enjoy your weekend, traders. We go again on Monday.