GoldPrice.

Happy Friday, traders. It’s Christmas time!

But first, what kind of week has it been?

Gold prices have been where all the non-garment-rending action has been this week, especially post-Fed. As we head into the weekend and send European investors away for the next two weeks, shiny yellow is trading around $1255/oz with some conviction, following a slight rebound in the Dollar and some bearish positioning before the pre-Christmas weekend.

The Fed Delivers a Merry Christmas to Gold-Longs, Equity-Bulls Get Coal

This week’s 0.25% rate hike from the Federal Reserve looks to have reset the table for the end of 2018. As we talked about yesterday, we got the “dovish hike” that pretty much everybody expected out of Powell & Co. Well, everybody but the actual financial markets, I guess. It’s been a whole lot of wailing and gnashing of teeth in the two days since. Someone, somewhere, is almost certainly sacrificing a goat in hopes of turning this whole thing around. I am sure of it.

I’m not much of a copy-paste kind of guy, so instead of rehashing the details let me link you to our FOMC recap post, here.

Gold spot price has benefited in a big way from the growing negativity in equity markets around the globe. After a briefly puzzling sell-off that looked like it would threaten $1240/oz during the Fed’s press conference, we’ve seen gold test high-points over $1265.

Experience tells me that the extended reaction to this Fed Day and the coarse market conditions is going to be muted a little bit by the holiday period as a large chuck of market participants (Europe) are basically offline from today until just after New Year’s. For the most part, I think this means that without any unexpected positive developments over the next week and a half we’re going to be dealing with the FOMC fallout well into January. The other quiet risk that’s worth mentioning is liquidity: any large change in market positioning will be exacerbated by shallow trading—I’d refer you to today’s sharp drop in gold around 1pm EST as an example of what that could look like.

Gold drops below $1260 as greenback extends correction https://t.co/dTeunZqiC0 #Gold #Metals #XAUUSD

— FXStreet News (@FXstreetNews) December 21, 2018

Luckily, everything is calm and settled in the world’s largest economy heading into this period of low-liquidity and high-potential for knee jerks. I mean, this isn’t Britain.

Oh. Wait. Oh no.

The Partial Government Shutdown Looms

At time of writing—a real tightrope of a caveat these days—the US House has passed a government funding bill that is presumably doomed in the Senate. With the President refusing to sign a stop-gap bill that seemed to have support from both houses earlier this week, we seem headed for a partial government shutdown. Again.

These 9 departments will partially shut down at midnight ET if Congress doesn't pass a spending bill:

-Homeland Security
-Treasury
-Agriculture
-Interior
-State
-Housing and Urban Development
-Transportation
-Commerce
-Justice pic.twitter.com/wBhIlj17rz

— TicToc by Bloomberg (@tictoc) December 21, 2018

Now, I’d argue that this had been a slow train coming for the last 36 hours or so. With that in mind, I bet that the initial event of a partial shutdown is baked into gold and dollar pricing already. What I’ll be looking out for in next week’s environment is what kind of dramatics follow.

Pre-FOMC Economic Data

I’d understand if you have trouble feeling like any other economic data points from this week are worth talking about. It was the Fed, stupid! You’d be forgiven for shouting. And I agree, but trends are important once the big headlines fade away. So, indulge me in some regular recapping here, and then you’re all dismissed for the weekend.

Gold’s trip to $1260 and higher began with a boost north of $1240 on Monday as the NAHB’s Housing Market Index faltered at the same time as the Empire State manufacturing index dropped to a nearly two-year low. The data’s shaky indications about the American economy’s pace put more pressure on the dollar and equity markets, already struggling with worries over what a Fed hike would do to the rickety stock market as well as concerns over the looming government shutdown.

The US economy got slightly better news Tuesday and Wednesday morning though, as reporting on housing starts as well as home sales came in better than expected. Of course, and Dollar-positive sentiment that had returned ended up getting snuffed-out by the global markets’ reaction to the FOMC decision and economic projections.

Post-FOMC Economic Data

The post-FOMC economic calendar was pretty much blotted out by the reverberations created Wednesday afternoon, including the inert announcements from two other major central banks in Tokyo and London.

Stateside, the weekly Initial Jobless Claims report on Thursday that showed an uptick from last week just slightly below market expectations. This morning was a mixed bag of sorts, with personal income and spending data coming is mostly as expected while Durable Goods Orders (especially ex-Transportation) were disappointing.

There is one post-FOMC data point that caught my attention and that I want to highlight: the U of Michigan Consumer Sentiment indices. Both reads—for “current conditions” and expectations going forward—were more positive than expected. As I mentioned in yesterday’s post-mortem on the FOMC, I think the “soft data” of economic sentiment polling is going to be helpful to follow in the next month or two. The Fed felt comfortable hiking this week because they see the economy as strong (or at least “solid,” depending on who’s speaking.) For the most part, the consumers participating in that economy have agreed. Will they continue to after this week? I think the next big domino to fall on our way to a full-on recession is going to be consumer’s perception of how the economy is faring at home and abroad. Like most data, sentiment reads are always on a lag; the rout in US equities this week won’t have been taken into account in this month’s readings. Next month, though...let’s watch this space.

Next Week

Next week’s economic calendar is fallow given the holiday period. As discussed, markets will have a ghost town feel was we get a smattering of data and wrap up reporting on the US housing market for the year. The health (or lack) of the stock markets at home and trying to figure out what comes after a likely government shutdown will dominate precious metals and currency trading next week.

I’ll be back on Monday, for what’s likely to be more of a check-in on these major macro stories than our usually rundown of the economic calendar.

Until then, enjoy your weekend traders!