GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, with a focus on the economic data and market narratives that mattered the most for gold, the Dollar, and related assets.

Gold prices are trading at a seven-year high to end a week of propulsive gains, as markets around the world carry out a ubiquitous flight to safety. Silver spot prices are trading above $18.50/oz once again and yields on the benchmark US Treasury 10yr debt are at fresh lows, under 1.5%.

So, what kind of week has it been?

Typically, I like to use these Friday recaps to walk you through gold’s trading week chronologically, to help us understand what trends are in place and learn what we can use to predict the yellow metal’s movements in the future. There’s not really anyway that I can spin this week as “typical,” however. Gold prices are trading north of $1640/oz for the first time in several years, driven by one key narrative: the ever changing—if not still growing—global health crisis that is the Covid-19 coronavirus epidemic. Any time spent breaking down other inputs to gold price this week would just been using up space.

So the wrap will be quick this week, and in a change of structure, we’ll touch on how the narrative has evolved over the last five trading days to continuously boost gold (and other safe haven assets) higher, before wrapping up with a look at some of the important economic data from the week.

Supply Chain Worries, Economic Damage

Following a Monday session that was truncated by a US federal holiday mostly quiet for markets, the initial leg higher for gold prices that would take the yellow metal above the psychologically important level of $1600/oz came on Tuesday morning. Markets were mixed at best, as analysts and investors tried to reckon with one of the world’s biggest companies warning that the economic aftershocks of the Covid-19 virus were already darkening the outlook for 2020:

Apple says it won't meet quarterly revenue guidance due to the coronavirus constraining iPhone supply and demand for its products https://t.co/eqVmIF1SMV

— The Wall Street Journal (@WSJ) February 17, 2020

Additionally, BHP Group, one of the largest global mining operations, predicted that the demand for raw commodities—expected to be a key driver of global growth in 2020—will be materially damaged if the outbreak is not contained by April.

Fed Rates Look Lower for Longer Even If Growth Continues

Gold spot prices were already elevated above $1610/oz on Wednesday morning before the release of the FOMC discussion minutes from January. Global markets looked to be regaining some stability and optimism, thanks in large part to news that the Chinese central bank seemed willing to apply another raft of strong stimulus measures to combat the slowdown threatening the world’s second largest economy.

I published a deeper recap of the meeting minutes here. While the reading confirms the view that the FOMC views the outlook for the US economy as broadly positive—at least, they did at the end of January—even in their most optimistic assessments the committee seems willing to leave interest rates and monetary policy in “easy mode.” US stocks closed the day with big gains, celebrating the implication of the easy money taps remaining open for a while yet. Gold prices moved higher for the day as well; with interest rates expected to remain low, investing in the non-yielding yellow metal will remain attractive. Crucially, the excitable buying in the stock market was vulnerable to a change in sentiment, while gold’s upward momentum could only be increase with a reversal in the economic outlook.

Health Crisis Move to New Stage with Growing Cases ex. China

On Thursday: the reversal. Earlier in the week, markets and observers had been made cautiously hopeful by signs that the spread of Covid-19 within China was slowing down. Even if evidence was mounting that there would be real economic drag to reckon with, the thinking went, at least an end to the humanitarian health threat of the disease would allow governments and institutions to get to the work of correcting the damage. Those hopes were crippled on Thursday as it became clear that regardless of any improvement in the rate of infection in China, the spread of the virus in other parts of the world was accelerating. As global markets scrambled to reassess their outlook, investors fled into the safety of gold and the yellow metal stepped up to seven-year highs.

Dollar Falls as US Stocks Reel, Removing Major Headwind on Gold

With Thursday’s market action setting a baseline, Friday’s trading has been more of the same—only faster. The infection and casualty numbers now show the Covid-19 epidemic reaching a dangerous and pivotal new stage, while Chinese authorities decision to again recalculate their official tallies has only served to inject uncertainty into even the positive developments of the week.

The rush of fearful investors into gold has deepened on Friday as big players have been taking their last chance to find shelter before the weekend, not knowing how the landscape or outlook may shift while markets are closed. Additionally, as the losses in the US stocks have worsened we have seen the US Dollar falter after rolling through its strongest start to a year since 2015. With both fear-driven fundamentals, and technical charting both supportive of a bull run to gold, the removal of such a major headwind for the yellow metal has allowed it to close the week with a genuine chance to break $1650/oz.

This Week’s Economic Data

The standard motions of the US economy kept moving this week despite all the market chaos. Aside from Wednesday’s FOMC minutes that we have already covered, the only prints that managed to make a tangible impact on gold this week were this morning’s shaky data on Existing Home Sales, and a truly concerning look at manufacturing and service sector PMI:

Its monthly PMI report printed 49.4 for the services sector, missing expectations of 53.4. Manufacturing slowed for February, coming in at 50.8 versus expectations of 51.5. Get your market update from @FxWestwater here: https://t.co/woXvXX1uqq pic.twitter.com/pFp8MAj52O

— DailyFX (@DailyFX) February 21, 2020

Other domestic economic data was more positive, but broadly ignored amid roiling stock markets this week:

• Both the Empire State and Philly Fed regional manufacturing indices strongly outperformed expectations and recent trends.
• Producer Price Inflation was above trend in January, and the housing market saw better data than expected on housing starts.

Next Up

Resisting the urge to just type “escalating health crisis” in 36-point font, I’ll mention that next week’s data calendar is thin in the middle, but does include a very important update to the Federal Reserve’s PCE inflation data on Friday.

For now, enjoy your weekend, traders. Hug your people and stay healthy out there. Get some rest, and I’ll see you all back here on Monday for our look at the week ahead.