GoldPrice.

Happy Friday traders, and welcome to 2019!

As has been the case for the last couple weeks, this recap is a bit shorter than our usual as the holiday week and the US government (partial) shutdown have muted the calendar of economic data and macro stories that typically impact precious metals markets. Still, it hasn’t been without it’s interesting moments.

So, What Kind of Week Has It Been?

As of lunchtime on Friday, gold is currently trading with confidence in spot markets at $1284/oz alongside silver ounces at $15.70. While that’s a decent sell-off from a Thursday session that saw gold spot prices north of $1290 for much trading and a brief period of the active futures contract breaking the $1300/oz barrier, the yellow metal is still roughly $5 richer than it was to start the week. I think that’s a pretty heartening position for gold to hold heading into the first full trading week of 2019, especially given the massive data surprise that was delivered this morning.

Trading for the new year started on an aggressive note for gold markets on Tuesday night into Wednesday morning, as global indices already a bit shaky from a volatile Christmas week in US equities fell further on the release of some unexpectedly negative economic data from China (the world’s second largest economy.) At the forefront of the disappointment was a contractionary read of the manufacturing index, falling below 50.0 for the first time in well over a year. By the start of New York trading equities markets around the world were once more in the red, and gold was trading with strength just below $1290/oz.

It's a bad day for factory gauges in Asia - China's Caixin PMI falls from 50.2 to 49.7, the lowest reading since May 2017. Malaysia's is at an all-time low of 46.8.https://t.co/DavHV6dJHf by @endacurran pic.twitter.com/HBlinReTyo

— Tracy Alloway (@tracyalloway) January 2, 2019

The macro story coming out of China just doesn’t look like it’s going to improve any time soon, which may continue to support an over-extended US Dollar for now but in the near term may well begin to apply some serious pressure to the global economy. As such, we’ll start tracking some of the bigger China-related points on the economic calendar going forward.

The Wednesday-Thursday overnight handoff also saw some interesting action early in Asian hours, as a “flash crash” hit the currency markets during what currency traders call “the witching hour”—the brief period inter-session after New York traders go offline but before Japan come online. This is a period of markedly low liquidity.

You guys, there WAS a glitch in the markets. It just happened a day after President Trump said it did (and in a different market). https://t.co/349Ib5PtGC

— Leslie Picker (@LesliePicker) January 3, 2019

In this move we saw the Yen surge aggressively against many currencies; namely the Australian Dollar and Turkish Lira, but also the Pound and US Dollar. As is pretty common with these wild moments in FX markets, we don’t have much besides educated guesses at what exactly happened. I lean towards the generally accepted view that this was a flight from riskier assets into the safe-haven of the Yen. It’s easy to see why investors would be skittish about holdings in Turkey and (for now) the British Pound, and after the shakiness earlier in the week I can also understand the desire to exit AUD which is historically a proxy for the Chinese economy. At which point, if you’re funding out of the Japanese Yen, you’re only real options are the traditional safe-havens of the greenback or increasing your JPY positions. Given America’s inauspicious start to 2019…you see where this is going.

All that to say: the flash crash reverberated into other risk-off maneuvers, and we did see a bit of a leg up in gold prices around the same time.

The US session was also choppy but ultimately positive for precious metal. First, we saw December’s ADP employment survey deliver far above expectations (271k vs. 175k.) While there was a brief dip in gold prices it never seriously challenged the $1285 level and within 20 minutes was already trading once more near $1290.

Just a bit later came the release of ISM manufacturing data, which was a downside surprise compared to estimates (54.1 vs 57.7.) While a decline from November’s number was anticipated, the actual drop was twice that and indicated that the ISM metrics for Mfg. PMI data have now “caught down” to the readings of Markit and others in regard to US manufacturing.

December's ISM U.S. manufacturing index is a signal that the global growth drop-off is real. Insights via @CMEGroup pic.twitter.com/dPWzogoz4j

— TicToc by Bloomberg (@tictoc) January 3, 2019

As I mentioned at the start of the week, until now the ISM data had been the more positive outlier and its reversion to the mean saps some confidence out of the outlook for the US economy in the near- to medium-term. That narrative was likely a big part of the market reaction, as gold prices quickly shrugged off the strong-Dollar implications of an impressive ADP report to make its first real run at $1300oz since collapsing through it at the start of the summer.

Last night we did see some actual trading higher than $1300/oz in the active futures contract for gold, though it was short-lived and by early this morning spot prices had settled back to  around $1290 from highs at $1298.

Thursday’s out-sized ADP data should’ve (and hey, if they read our posts from Monday or Thursday, would have) tipped traders off to what the Department of Labor delivered this morning.

(Before I get absolutely pilloried for that: No, I’m not suggesting that I “called” this month’s NFP number—just that we mentioned one might be able to infer it based on prior data. Not in a million years would I have predicted a 3-handle on today’s data.)

So, yeah…jobs, eh? While showing a slight uptick in the unemployment rate (3.9% from 3.7%) NonFarm Payrolls more than doubled the estimated 155k and delivered at +312k. I don’t really know what to say about that just yet. I don’t think I’m alone there.

312k jobs added in December

what

— McKinnon de Kuyper (@McKdeKuyper) January 4, 2019

Now, perhaps the other thing we could’ve inferred from Thursday’s ADP is the gold reaction. If you asked me 36 hours ago, I’d have put a tidy sum of money on more than 300,000 added jobs driving us straight to $1250/oz in the gold market. But, similar to Thursday’s trading action, the response from precious metal (and related) markets has been muted—shiny yellow ounces dipped briefly below $1280 a piece, but at time of writing has already take back half of that sell-off to work orders around $1285.

And I think that’s a good place to wrap up the recap of economic data, because it’s a good opportunity to say that I think this is a bullish Friday for gold. In the wake of a phenomenally strong jobs report and a surging equities rebound, gold is holding strong above $1280. That is, to use a highly technical term, impressive as hell.

Before I go, let’s touch on some macro stories in the back our mind this week. FOMC Chairman Powell’s media appearance was fairly vanilla this morning, which investors mostly interested in his reiteration that the Fed’s path is very much data-dependent and very much not pre-determined. I think you can say that the equities markets are also taking some solace in his saying that, no, he would not step down if asked to by the President. (This should have been understood from day one, but that’s for another rant on another day.)

On other fronts, the Federal government remains partial shutdown after the swearing in of our new Congress. I expect that story heats up considerably over the weekend, into next week. Likewise, the Brexit mess across the pond should draw our attention again next week as we approach Prime Minister Theresa May’s self-imposed deadline to schedule the “meaningful vote” by the week of January 14. Finally, next week should also see the resumption of US-China trade talks.

On next week’s economic calendar, we’ll also be looking at: ISM Services PMI, meeting minutes from the FOMC and ECB, and the US inflation report for December.

That’s all from me this week, traders. Enjoy your weekends!

I’ll see you back here on Monday for a look at the first full trading week of 2019!