GoldPrice.

Happy Friday traders! Did you miss me? The last two weeks of trekking the Italian coastline have hopefully not whittled my analytical skills too much, and I’m glad to be back with you. Big thanks to my friend Ryan Page for covering the Monday/Friday posts while I was away.

So, lettori mio, what kind of week has it been?

Safe to say, another week of growing tensions in global markets and handwringing about what the Fed should do and how that translates to what the Fed will do. Good think we have a big end-of-quarter FOMC meeting next week!

For now, at time of writing, gold spot has sold off from its 13-month high reached during the European session, as traders take some profits heading into the weekend and the market’s adrenaline-spike from Thursday’s uptick in Persian Gulf tension seems to be easing a bit.

With that FOMC meeting looming ahead of us, let’s take a look back at the week that has been.

Gold Prices Pull-Back and Correct to Begin the Week

The gold markets felt like a rickety balancing act at the start of US trading for Monday this week, as trading had opened with a $10 gap-trade down from Friday’s high-point close and followed that with another more orderly (if only by comparison) sell-off of another $5 or so to hang spot markets just below $1230/oz.

The obvious catalyst for this roll off the table was the weekend announcement that the White House would not be imposing the threatened 5% tariffs on goods imported from Mexico, which was celebrated by global equities markets (as well as the Mexican Peso, which jumped by the most in a year;) there was very clearly a renewed appetite for market risk after the choppiness of the week before. An additional weight on the gold market sell-off was likely some amount of expected profit-taking on the three-month high in gold prices that closed last week. Despite the steepness of the charts, the move was still described by more than a few as a “normal, corrective pullback” from last week’s momentum—a view solidified by gold prices trading mostly flat through a quiet Monday session.

Gold Price Chops, as Risk Appetite Returns to Markets but So Do FOMC Questions

Weakness would come though, as the calendar turned to Tuesday for the Asia and Europe trading sessions and continued risk-happy sentiment would knock another $5/oz or so off of gold prices heading into the morning. Perhaps because metals traders, for the first time in at least week, saw the low-running gold prices as cheap, the US morning session became a textbook example of buying the dip as the losses overnight were entirely erased by the late morning in Chicago. At least some of those dip-buyers might have been further encouraged by overnight news that the PBoC in China will extend its recent gold-buying spree amid continuing trade tension with the US.

The first US macroeconomic data in a very light week was Tuesday morning’s update to the PPI, coming in just as expected in both the headline and “core” variants. Because the actual and expected results were so low, the result could certainly be seen as a net-negative indication for the state of the American economy (which would likely have spurred some gold buying,) but I think a little more thought and examination suggests that, while uninspiring, it reports its variant of prices as roughly in line with how the FOMC has seen inflation to look as it has continued to call weak-inflation pressure as “transitory.” In other words, I believe this week’s PPI is a tally in the “Fed Pause Continues” column rather than the “Get Ready for a Rate Cut” bank.

Because it generated headlines, as it always does, there will be some that ascribe Tuesday morning’s gold rebound to the President railing against the Fed’s failure to have cut rates by now and the perception that his tantrums can actually put pressure on Powell & Co. to do as he wishes. My thinking—I can occasionally convince at least myself that that’s why I can find you hear every week, reader—remains tied to the belief that neither the member of the FOMC nor “the market” are quiet that stupid. Other factors (mostly those I’ve already discussed) compelled a rebound in gold prices that coincided with Trump’s remarks, and that’s the extent of the relationship. As the one-armed, three-eyed drifter who taught me to analyze markets was fond of saying: “correlation does not imply causation.”

Gold Price Rises on Wednesday as June’s Risk-On Start Breaks Down

The risk-on sentiment in equites markets, and the generally rally in risk appetite that started the month, flickered out during overnight/Asia trading in the Wednesday session, cooled by investor concern tied to the unrest in Hong Kong and the risk that a turn for the bad could pose to major capital markets in Asia.

Gold prices rode the switch to risk-aversion throughout the core of the US trading session on Wednesday, picking up roughly $4/oz on the day and settling around $1333 through the afternoon after a choppy morning. Included in that A.M. trading was the biggest piece of US economic data for the week: May’s CPI inflation report. Headline inflation as well as the less-volatile “core” reading both disappointed slightly in year-over-year comparisons of expansion. Still—especially given that the core number remains at 2% on an annual basis—my view on this week’s CPI is similar to what I had to say about Tuesday’s Producer Price variant: It’s not “great”, but it’s also broadly in line with the Fed’s perception a month ago when nobody was really talking loudly about rate cuts in 2019 and so I think this is another data point that will encourage the Fed to keep rates on hold (even while reassuring markets that it could cut rates if needed.)

Tension Around the Persian Gulf Raises Geopolitical Fears and Increases Gold Positioning

Thursday began as a fairly mild respite for gold markets (a mostly as-anticipated report on Weekly Jobless Claims did little to move the needles,) until later in the US morning session and further developments of concerning reports of yet another attack on oil tankers around the Persian Gulf. Later in the day, as the US firmly pointed the finger for the damage at Iran, global markets moved towards safe-havens like gold and the yellow metal saw another uptick to north of $1340/oz to wrap up the day.

Asia’s Friday session was somewhat subdued but did offer an added tailwind to gold prices as markets previously closed began to digest the uptick in US/Iran tensions, and Chinese data continued to disappoint and suggest further slowing in the world’s second-largest economy. It was the European session that saw the largest boost to gold prices, and fear of “hot” conflict in the Persian Gulf drove a fear trade and pushed gold prices to a 13-month high—north of $1355 in the spot markets.

As is often the case, US traders in their skepticism saw the opportunity to take profits heading into the weekend and in the hours since New York came on line we’ve watched gold spot drift down below the major psychological line of $1350/oz once again. As Kitco’s Jim Wyckoff points out however, the general unease that has characterized global markets for the last two weeks is likely to put a limit on this kind of selling for now (especially, in my mind, just ahead of an end-of-quarter FOMC meeting next week.) May’s retail data probably contributed to some of the selling as well, with the new number more or less arriving on target, and the dour data from April being revised up above 0.0% which provided some lift to the Greenback.

Next Up

Next week we’ll see the return of the cycle for housing data in the US, but of course the big dog on the calendar will be Wednesday’s FOMC meeting, statement and quarterly update to the Staff Economic Projections. The twists and turns in markets over the last fortnight have set quite a table for Jay Powell & Co, so we’ll be sure to have you set up with a preview next week and a full recap after the fact.

Until then, enjoy your weekend traders. I’ll see you back here next Monday for a look at the week ahead—assuming I remember how to put one together.