GoldPrice.

Happy Friday, traders; welcome to our market wrap on the week in gold and related markets. Despite a solid docket of macroeconomic data, this week’s trading was dominated by headlines around the assessment and containment of China’s concerning coronavirus and the lasting impact it could have on global growth. Alongside some fearful headlines, the FOMC delivered a mild surprise to markets mid-week, creating some more upside range for gold prices in the near- to medium term as well.

At the time of writing this morning, gold prices are sitting elevated near to $1585/oz while equity markets are struggling ahead of another weekend in thrall to global health developments which cant really be anticipated over the weekend ahead. Meanwhile, silver has finally managed to retake $18/oz and the yield on the US Treasury’s benchmark 10-year paper has dipped below 1.6% again on a continuing flight to safety.

So, what kind of week has it been?

Gold Prices Spiked to Start the Week on Global Health Concerns

Following the swift rush to safety that opened the markets this week and saw spot prices for gold reach as high as $1590/oz, the yellow metal moderated somewhat throughout the US trading session and found a comfortable range to trade between $1575-85, spending most of the day around 3-week highs in the 80s. The market’s initial rush of risk-aversion, as we covered in Monday’s weekly preview, was driven by the reporting of new coronavirus cases inside china over the weekend which had produced much higher numbers than expected.

As the day progressed, while confidence was growing that the correct measures were being taken to eventually contain and combat the virus, risk aversion was driven by growing worries about the longer-term drag on global economic growth after a strong start to 2020. Travel restrictions and a spike in general fear and unease in China will put a considerable dent in consumer spending over the course of one of Asia’s biggest shopping holidays; analysts and managers alike will be working to assess possibly major issues along supply chains, in the tech industry in particular, that rely on production from China’s quarantined Wuhan province. For gold markets, the damage to spending is more immediately relevant as it implies a possible drop in near- to medium-term demand for raw luxury materials. The score for Monday was ugly across most risk assets: the Dow and the S&P 500 fell the farthest since October, giving back the whole of their 2020 gains, and a seven week rally in emerging markets was snapped. Demand issues and plummeting risk appetite contributed to a significant drop across most of the commodities complex this week (crude oil took the worst of it, falling to a three-month low,) and we began to wonder if gold prices would be dragged lower this week once a certain degree of fearfulness rotated out of the market’s mindset.

Tuesday’s Risk Relief Rally Sank Gold Prices Lower Pre-FOMC

After trading flat along the $1580/oz level through the lighter Asian market session and the first half of European trading, those headwinds did seem to hit gold (and silver) prices pretty hard. While Asian stocks were still broadly lower on their Tuesday book of business, Europe’s major equity indices managed to hang on for a flat session and US futures in the early morning were pointing towards a slight recovery as the worst of the virus-related fears seemed to be dissipating. The first green shoots of risk-appetite were enough to push gold prices through the floor of support at $1580 a few hours ahead of the New York market open.

Yellow metal’s spot prices regained a bit of ground on the back of a mixed-bag of Durable Goods data—in which the less volatile “ex. transportation” was weaker, and decent numbers from the prior month were downgraded); but following the equity open gold prices were swatted lower again on the market’s reaction to a very strong outperformance on manufacturing data from the Richmond Fed, alongside an uptick in consumer confidence metrics. While silver prices took the nastiest hit, collapsing to four-week lows below $17.50/oz, gold spot prices dropped another $10+ and fell through $1570.

Risk assets on Tuesday took the morning’s decent start at ran with it: in a nice bit of two-day symmetry, US stocks would pick up their biggest daily gain since October of last year. Investors around the world were buying-the-dip as markets began settling into the idea that the very worst-case scenarios around the health crisis in China would be avoided. Gold prices in the Tuesday session made a few effortful attempts to retake prior support at 1570, but ultimately closed the day just below the level.

A More Dovish Than Expected FOMC Statement Drove Non-Yielding Gold Prices Higher

Asian markets showed some signs of recovery in Wednesday trading; partially in response to the rebound in US equities on Tuesday’s book of business, and partly in relief as Hong Kong’s Hang Seng Index, open for the first time since last week, didn’t force as much pain on investors as many were expecting. The second leg of optimism pushed gold prices even lower, striking a low point for the week in early Asian trading. Still, the numbers of reported cases and quarantine lines drawn continued growing, and with a good deal of tension still threaded through the global economy there were more than enough investors willing to step into the yellow metal at low marks. Prices moved back above $1570/oz during European market hours; ahead of the January FOMC announcements, gold traded just above its re-taken level of support.

Our regular readers will have seen our FOMC recap on Wednesday afternoon (for the rest, I’ll link you to that here.) The recap of the recap: while delivering the no-move decision that was almost universally anticipated and reaffirming the Fed’s commitment to the current freeze on monetary policy through (most likely, at least) the end of 2020, Jerome Powell & Co. struck a dovish tone in the committee’s statement. Changes to the language imply that the FOMC may be slightly more concerned about downside risk from trade conditions abroad and stagnating inflation at home, and that the committee views the current economic conditions as far from needing additional policy easing, but perhaps even farther away from compelling rate hikes. The tones of risk-aversion from the central bank, and they implication of low yields for even longer coordinated to drive gold prices higher in the afternoon post-FOMC, and the spot market would close at $1577/oz.

Gold’s Weekly Gain Solidified on Thursday as the Risk Rally Petered Out

The turning of the page to Thursday in Asia brought another unfortunately rise in the number of confirmed coronavirus cases in China as well as fatalities, and from there is seemed as if the midweek risk rally was fully exhausted. Asia equities stumbled again, and European stocks also saw broad selling. A replayed flight to safety pushed gold prices slowly higher, and the yellow metal would make a brief attempt to break through $1580/oz once again early in the European session.

US GDP for the fourth quarter of 2019 was reported broadly as anticipated on Thursday morning pre-market. The 2.1% quarterly rise matched expectations but confirmed GDP for all of 2019 as +2.3%, lower than the two years prior. Gold prices appeared to generally shrug off the data, trading relatively steady just below $1580/oz through the first hours of cash markets.

Gold’s most volatile phase of the week began with price breaking back above resistance at 1580 mid-morning as global weakness in equities slipped into the US session. Around lunch time, and just as the initial gold rally seemed to be tailing off, US officials reported the first incident of the coronavirus being spread person-to-person within American borders. Once again the headline-driven rush to safety lifted gold prices, this time near to $1585/oz, from where it looked like they might challenge the highs from Sunday evening. Just hours later however, momentum swung the other way. While the World Health Organization finally took the step of declaring the coronavirus outbreak as a public health emergency, it vitally stopped well short of calling for travel bans and trade quarantines. American markets in particular were further relieved as the CDC reassured the public that risks to the domestic population remain low. The result of these headlines in financial markets was an aggressive rally in equities that saw the S&P fully erase its losses for the day. Conversely, gold prices collapsed lower as money flowed back into risk positions; the yellow metals cascaded lower to close the afternoon at $1575/oz in the spot markets.

Gold Prices Remain Elevated to End the Week as Markets Stand Optimistic, but Cautious

Despite the mood of optimism to end yesterday’s session, equity markets have slipped again this morning with the major US indices (as well as the Dollar, broadly) weakening just as stocks had throughout the final trading sessions for Asia and Europe this week. Correspondingly, gold prices have been back on the rise again.  There was always likely to be an added level of safety seeking in today’s morning hours, as this is officially Brexit day—shortly after global markets close this evening, the UK will have officially excised itself from the European Union. While no dramatic changes will take immediate effect (there will be a transitional period of at least a year, during which key conditions/agreements will remain in place,) it’s understandable to see some hedging of risk ahead of markets opening to a different London next week.

The updated data sets on PCE inflation rates and Personal Spending which Wednesday’s FOMC rhetoric had pointed to where mostly a non-event for markets, coming in almost exactly in-line with expectations. From a basecamp of $1580/oz, gold prices moved steadily higher through this morning’s trading as US stocks have fallen—at the time of writing, gold’s rally has topped out just below $1590, while the S&P 500 and the DJI are both down more than 1.5% on the day; the Dollar has weakened as well.

As we move into the afternoon, gold prices are stabilizing in the mid-1580s again, following some early profit-taking from short term speculative positions.

Next Up

Next week’s data calendar is considerably quieter than what’s just behind us. I suspect we’ll get a handful of relevant FedSpeak appearances on the calendar, and I’ll also see ISM’s updated on manufacturing sector PMI which has been a little schizophrenic at best lately. But the big draw of the week will be Friday’s January Jobs Report. Of course, the market mood at the start of next week will depend entirely on weekend developments around the state of play in China, and the coronavirus’ potential spread abroad.

For now, get out there and enjoy your weekend, traders. I’ll see you all back here on Monday for a look at the new trading week.