GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.

Gold prices on Friday afternoon are looking to suspend the morning’s slide, at the end of a week that has shown “soft” inflation data to have a more concerning impact on risk-appetite than concrete data released earlier in the week. Still, gold spot prices are bid a moderate premium to where the week began, allowing for another constructive stretch for the yellow metal as it navigates the summer doldrums.

So, what kind of week has it been?

Nobody was reasonably expecting to see the Fed’s “moderation” of the recent spike in consumer price inflation as early as this week, but the market consensus was certainly behind the eight ball when Tuesday’s CPI data reported year-over-year increases in both “headline” and core inflation for the month of June. The headline CPI number came in at +5.4% while the less volatile core measure was +4.5%; Both were roughly 0.5% higher than projected.

• The data represents the biggest monthly CPI increase since 2008, and the steepest annualized rate of core inflation since 1991.
• Although the numbers reported were outside the bounds of the market consensus, the overall market reaction to the data was mild as expected. Investors on Tuesday held a calm tone of confidence in the belief that this recent phase of outsized inflation will “normalize” before getting out of control and/or requiring some form of intervention from the Federal Reserve.
  
  • An acute rise in the cost of used cars continued to be the largest driver of inflation in June, supporting the view that inflation is not being felt uniformly across the US economy in a way that would be genuine concerning. Most of this spring/summer’s inflation pressures continue to emanate from the travel/hospitality sectors (experiencing unprecedented resurgences post-vaccine in the US) and segments, like automobiles, which are still experiencing supply chain growing pains as post-pandemic demand spikes.

While the reaction in US stocks was subdued—equity indices slipped on the day overall, but only just—gold prices experience some immediate volatility around the CPI release on Tuesday. Once the dust settled, however, the yellow metal looked strong and calm around the $1810 level in spot markets, holding a firm grip on the week’s healthy start.

• US Treasury yield’s shifted higher on the inflation data, tracking the benchmark 10-year yield briefly back above 1.4%; But the move last steam quickly and slid through the next days’ business.
• With the start of trading in overseas markets on Tuesday evening, we could see more investors being drawn to positions in gold. Ahead of the US’ Wednesday and congressional testimony from Jerome Powell, spot prices consolidated above $1810/oz.

The common refrain after June CPI was released on Tuesday was that the slight but noticeable acceleration in inflation might well “put pressure on the Fed” to step forward from its dovish stance and maybe accelerate its tapering/hiking time table to keep the phantom menace of hyperinflation at bay. In his prepared remarks and testimony before congress, Fed Chair Powell pushed back firmly against this narrative. Particularly on Wednesday.

• As gold prices made some gains during the overnight session, the US Dollar Index was slipping. Both moves accelerated sharply on Wednesday morning as text of Chairman Powell’s prepared remarks were released: the Greenback weekend farther while gold’s spot price rode a spike to $1825/oz and higher.
  
  • The yellow metal would ultimately be able to lock in most of these gains (for the day at least.) Silver spot prices were less able to sustain through the morning, but still made solid price improvements.

Powell, in both his opening statement and the day’s testimony in the House, presented himself and the FOMC as a whole as generally unphased by the big numbers in Tuesday’s inflation data.

• The Fed’s Chairman maintained the party line that the US economic recovery’s progress, while encouraging and perhaps faster than expected, is still not enough to fulfill the Fed’s benchmark of “substantial forward progress” to initiate a taper of the current asset purchasing program, much less to plan for raising interest rates.
• Powell also reiterated the view that reported inflation rates are likely to remain elevated in the months ahead before moderating lower without the Fed’s involvement (or other measures.)
  
  • The chairman continues to point to the long road still ahead for the US to achieve a “full” labor market recovery post-pandemic; And to the directly negative effects that the Fed tightening monetary policy—whether in an effort to curb inflation or otherwise—would have on that recovery.
• US equity markets didn’t move with the same velocity that was saw in the precious metals or the Dollar, but investors seemed largely happy with Powell remaining dovish and suggesting that the cheap money taps will remain open for a while as planned.
• Gold prices again trended higher during the overnight sessions, peaking above $1830 early Thursday morning before sellers stepped in.
  
  • Given the amount of attention on inflation data and talk this week, it’s difficult to untangle whether the tailwinds for gold are coming from the reflation/reopening trade that was such a boon to gold prices for most of Q2, or from a more traditional mechanism in which investors treat gold as a hedge against inflation. Given then tepid activity in equities this week, the latter may be most likely.

It’s worth pointing out that, for the first time in quite a while, Chairman Powell’s pre-written remarks this week made no use of the word “transitory” (relating to current inflation pressures.) This change (or, at least, intention omission) felt more relevant in Powell’s testimony to the Senate which felt a bit more combative even as Powell held his line.

• The Chair did put more time on Thursday into vocalizing that the Fed is paying constant, close attention to inflation, assuring his audience that the FOMC will not ignore (or miss) a turn in conditions if their current evaluation ultimately proves incorrect.

"One way or another, w'er not going to be going into a period of high inflation for a long period of time, because of course we have tools to address that," he adds. "But we don't want to use them in a way that is unnecessary, or that interrupts the rebound of the economy."

— Jeanna Smialek (@jeannasmialek) July 15, 2021

• Equities were more of a mixed bag in Thursday, tipped slightly lower. And gold prices experienced some weakness during Powell’s testimony in the morning, but were well backstopped by steady interest from buyers and sliding Treasury yields. The session closed with gold spot prices just below $1830/oz. (Metal prices would go on to soften a bit overnight as sovereign yields rallied from an ultra-cheap nadir.)

Wrapping up the week on Friday, we’re seeing that while concrete inflation data was mostly unable to push markets one way or another, softer assessments of rising prices certainly can. With the release of the University of Michigan’s preliminary survey data for this month, not only is “consumer sentiment” falling lower than expected, but the pessimistic shading can be directly tied to an uptick in the same surveyed consumers’ expectations for future inflation.

• In direct response, US stock markets have fallen from a promising start to the session. At the same time, investors seem more eager to position for a possible shift in Fed language or policy on Friday than earlier in the week: The US Dollar as made consistent gains to end the week, while gold prices have slid throughout the session. With spot trading at $1810/oz, the yellow metal looks to have given back most of its post-CPI gains.

Friday’s move in gold has the feel (and velocity) of an overzealous market correction, and it seem reasonable to think gold prices will find reliable support around $1810 to start the next week of trading. This would still allow for a generally constructive week in the precious metal’s chart; Although it leaves the market back in the position of needing a catalyst to provoke another rally, heading into a week with little to offer on the data calendar.

For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.