GoldPrice.

Happy Friday traders. Welcome to this week’s recap of market events with a particular eye towards gold prices.

What kind of week as it been?

An unequivocally positive week, I think we can say, for gold prices. Having set a foothold above the major psychological price-line of $1300 to end last week, several different factors have collaborated over the last few days to drive uncertainty in global markets this week and increased the value of risk-averse assets like gold. Let’s have a closer look.

Gold Prices Reach Above the Highs of Summer

By late Tuesday morning gold prices were already trading at a levels we haven’t seen since May of last year as a mix of factors—the upcoming FOMC meeting, US-China trade tensions, Brexit negotiations—continued to increase the risk-off sentiment in markets.

The price of #Gold continues to press higher after the latest uptick took out multi-month resistance, leaving the precious metal at levels last seen in June 2018. Get your weekly update from @nickcawley1 : https://t.co/Odrv7OVB4Z $GLD pic.twitter.com/dMnz7ATK0J

— DailyFX (@DailyFX) January 30, 2019

Fed Leave Rates Unchanged but Removes Forward Guidance, Spiking Gold Price to New Highs

The 800-pound economist in the room this week was, of course, the January FOMC meeting. I hope you’ll have a read through my recap of the rate-decision as well as the committee’s statement and what it might imply for markets in 2019. The headline for gold traders has been a $1320/oz spot price (and higher at times) on the suspicion that the full-stop end of the Fed’s hiking cycle may be arriving sooner that expected while the advent of a rate-cut regime follows close behind.

The US Economy’s Leading Indicators Continue to Show Some Wobble

Tuesday’s Case-Shiller Home Price Index was the first meaningful data release this week and provided a $3-4/oz boost to gold prices as it delivered another less than stellar report on a leading indicator of the American economy. The index missed analyst expectations as home prices grew at their slowest pace in four years. Deeper dives into the data wouldn’t provide much of a silver lining—only 7 of the cities that comprise the 20-city composite recorded an increase in home prices.

There’s a Whole Lotta Workin’ Going On

This month’s jobs week played out a much like last month’s outstanding reports. First, on Wednesday morning, the ADP National Employment report confirmed that private payroll growth not only continued across nearly every sector but did so to the tune of another massive upside beat—213k jobs reported vs. expectations of 175k ahead of the release.

Companies added more workers than forecast to U.S. payrolls in January, signaling a healthy start to the year for the job market https://t.co/SKefiJmWuH

— Bloomberg Economics (@economics) January 30, 2019

Friday morning, we see that the size of the gap between the ADP report and market expectations continues to correlate well to the size of the same gap in Non-Farm Payroll data. The heading jobs report for January was another outstanding upside beat, reporting as many as 304k jobs created, once again soaring well above expectations (170k.) Last month’s bombshell job growth was revised down to 222k from 312k, but even that number is some 50,000 jobs higher than we expected in the month analyzed. For a deeper breakdown of this morning’s jobs data, including the 10 basis point rise in headline unemployment (now 4%,) be sure to check in on the analysis from Conor Maloney.

A brief reminder, for any of you that like to follow this kind of correlation in structuring day-trades:  while the last two months are indicative of a reliable correlation between a differential in expected jobs-gained vs. the realized number, if you take a sample size larger than the last two (and, my goodness, you should), there is no confirmed correlations between the direction of the surprises. Simplified: a given month’s ADP report could arrive 20% higher than the expected number, and the same month’s NFP could come in 20-25% lower than the consensus call and the correlation would still hold.

Gold price was initially resilient in the face of another upside shock in jobs data; after all, if the Fed behaved as they did on Wednesday following a fireworks NFP in December why would a lightly downgraded repeat change the sentiment of the last 36 hours? That said, a number north of 300k is a heavy weight around the neck of any asset negatively correlated to the US Dollar; at time of writing, gold maintains a large chunk of its trend-breaking gains for the week but has sunk somewhat and trades in sport markets around $1317/oz. I see it as a positive sign for gold price action that it remains elevated today even after the greenback as essentially made a round-trip on its Fed Day price action.

Also on the employment docket this week:

• The Federal Reserve’s Employment Cost Index rose slightly in Q4 of 2018, though less than anticipated.
• Initial Jobless Claims had the expected correction from last week’s sub-200k print, reporting 235,000 new claims this week.

In the noise of Fed week and already surging gold prices, neither event had a strong impact on spot prices this week.

Brexit Stalemate, Part Three

The particularly frustrating part of trying to report on the UK’s (still!) high-speed cruise to collapsing out of the European Union—which I still think could be the most underreported macroeconomic risk for the global system in 2019—is that we continually emerge from “major votes” in the same state of “nothin’ doin’” as when we went in. This week, of course, was no different as a full day of parliamentary debate and voting on Tuesday accomplished nothing but to send the Prime Minister back to the EU-27 in hopes that she can renegotiate a deal that the same EU-27 has gone blue in the face saying they are not interested in renegotiating.

So, on Valentine’s Day of all days, they’ve scheduled another vote. For the time being, I’m going to stop punting this nonsense on to your radar until something meaningful appears to be in the offing.

Thankfully, the full return (for now) of the Federal Government and all their data reporting should give us plenty else to talk about for the next few weeks. To that end, next week we’ll be keeping an eye on ongoing negotiations around US-China trade relations (maybe getting somewhere!) and funding the federal government (almost definitely going nowhere!) On the data calendar, our heavy hitters are going to be the next evaluating of service sector PMI, and the erstwhile first read on Q4 GDP.

Until then traders, enjoy your weekend. I’ll see you on Monday.