GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, where we 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 are solidly higher to end the week, after the precious metal enjoyed some strong tailwinds in the immediate aftermath of this week’s key FOMC meeting. Looking forward, price action also appears to be consolidating support for gold and silver prices heading into the end of March.

So, what kind of week has it been?

Gold Charts were Calm to Start the Week, but Signaled Strong Support Levels Pre-FOMC

The first days of trading this week carried on with the promising signals we noted in Monday’s preview piece: That precious metals prices were finally managing to consolidate strength well above the $1700/oz level for gold, even as higher interest rates persisted with the benchmark US 10-year yield hewing close to 1.6% throughout Monday’s sessions. Gold spot prices showed some choppy trading on Monday morning, but the yellow metal clearly had solid support a bit of momentum. Gold closed just north of $1730/oz for the day.

US stock markets looked more reactive to intraday trends in the bond market than gold pricing did to begin the week. With Treasury yields still elevated but much less volatile than recent weeks, equities kept running on the back of seemingly limitless investor optimism about new fiscal stimulus and/or recovering US economic growth and/or the Covid-19 vaccination effort (take your pick.) The S&P 500 and the DJI continued their winning streaks—five and seven days, respectively—and the NASDAQ picked up 1% as it continued chipping away at the recent correction.

Tuesday was a similarly calm day for gold markets, though not for some related assets. A brief dip below 1.6% in benchmark yields overnight lent gold some momentum to move higher. The yellow metal picked up a bit of volatility over the course of Tuesday’s sessions (some weakness following the start of European business days, a temporary surge higher just after US stock markets began trading,) but waters were mostly smooth and gold’s spot price rounded out the trading day on $1730/oz once again. Treasury yields moved steadily higher through Tuesday’s business as sellers stepped back into the bond market, lifting the 10-year’s rate close to 1.625%. While initial surge in yields pulled gold prices down from a peak of $1740 prices clearly displayed strength at elevated levels, suggesting consolidating support for gold going into Wednesday’s FOMC meeting.

Stocks were again more sensitive to moves in the bond market on Tuesday, this time to their detriment. Rallying interest rates created a clear headwind for equities and snapped the streaks for both the Dow and the S&P. Curiously, the biggest sector losses on the day were led by energy firms and industrials; The later likely goes some way to explaining why silver had a much weaker performance on Tuesday than gold did, falling below $25.95/oz. Meanwhile, in a reversal from last week’s correlation to yields, tech stocks continued to perform well on Tuesday, allowing the NASDAQ to climb slightly higher. 

The Fed Held Its Line on Easy Policy, Driving Gold to Highs and Improving the Outlook for Precious Metals

Markets’ focus heading into the week was undoubtedly fixed on Wednesday’s FOMC meeting results and the accompanying press conference from Chair Powell afterwards. The main questions were: Would Powell & Co. feel compelled to suggest that the Fed might act earlier to combat perceived inflation risks, despite the fact that Powell had taken every opportunity before the blackout period to say that they would hold firm? And what would the updated Staff Economic Projections—now factoring in the $1.9t stimulus bill and its projected impact—tell us about FOMC members’ willingness to hike once (core PCE) inflation moves above 2%? The Fed, and Powell, in particular, as its key representative, had a narrow path to walk. They seem to have pulled it off.

MORE: Federal Reserve sharply ramps up its expectations for economic growth but indicated that there are no expected interest rate hikes through 2023 despite an improving outlook and a turn this year to higher inflation.https://t.co/j2CjmtQHws

— CNBC Now (@CNBCnow) March 17, 2021

Here’s a rundown of the key takeaways from the FOMC:

• Short-term policy rates remain near zero (as expected.)
• The median projection for GDP growth this year was revised to 6.5% (from 4.2% in December,) which would be the fastest calendar-year growth in the US economy in well over 20 years.
• The median projection for inflation (PCE, core) at the end of 2021 was also raised sharply, to 2.2% (from 1.8% in December.)
• However, the participants’ median projection of the forward path for policy rates still does not include any rate hikes before the end of 2023.

Although the major upgrades in the projections for economic growth and price inflation for 2021 line up well with expectations, I was certainly surprised to see that the FOMC’s median policy path didn’t project even a single rate hike before the end of 2023. (To be clear, there are participants projecting rate hikes over the next couple years: the anonymous “dot plot” shows that six members anticipate multiple hikes in the second half of the time horizon; Even that is less than expected, though.)

The recent surge in longer-date interest rates—which imply that some sections of the markets see the Fed as being forced to raise policy rates to fight runaway inflation sooner than later—offered the Fed the opportunity to either double-down or split from their newly adopted stance on allowing persistent inflation at an average of 2% to foster a “fully” (and equitably) employed labor market, and the Fed didn’t blink. Powell & Co. have reaffirmed that the FOMC will now act on inflation data rather than risk jumping the gun (again) in reaction to inflation forecasting. So, while the Fed is optimistic about US economic recovery and growth in 2021, they will keep the easy money flowing for the foreseeable future in an effort to extend the expansion.

The initial reaction to the FOMC in the Treasuries market was dominated by investors setting aside their inflation concerns—or else their hopes that the Treasury will be issuing similar debt at higher interest rates any time soon—and buying-in. The benchmark yield US 10-year notes fell sharply, but 1.6% seems to be a sticky level of support (or resistance, for prices) for the time being. The Dollar also dropped.

Precious metals prices, which had seen fairly subdued trading through the morning as investors waited on the Fed, shot higher on Powell’s assurance that inflation will be given room to stretch its legs (and become a market force against which investment portfolios may need to be hedged.) The FOMC’s post-meeting statement pushed gold spot prices above $1740oz, and Powell’s Q&A provided a tailwind that took the yellow metal as high as $1750 before markets calmed a bit and the chart settled roughly in between the two to close the session. US stocks took a similar ride and enjoyed a strong day. The key indices lacked momentum in the morning as some investors worried that the Fed might take a more hawkish tone, but the promise of lower corporate borrowing rates for even longer drove the NASDAQ higher while the Dow and the S&P 500 both rose to new records.

Gold’s FOMC Gains were Dented by an Inflation Backlash, But Support Has Remained Firm

Through Wednesday afternoon (and well into the Asian markets’ Thursday sessions as well) it seemed as if Fed Chair Powell had not just threaded his rhetorical needle well, but perfectly: The projections and exposition from the FOMC fostered further momentum in equities without setting off a lot of volatility in bond markets. In contrast, Thursday’s trading sent a decidedly different signal (even if it ultimately turned out to be an outlier for the week.)

Starting in the first hours of European trading, selling in the Treasuries market escalated sharply, and 10-year Treasury yields drove through 1.7% with very little resistance—the benchmark yield would rise as high as 1.75% by the time US stock markets were trading cash, the highest level in over a year. Although we’ve seen gold benefit from a loosening of its inverse relationship with US yields over the last ten days, that correlation still appears fairly tight when the bond market moves with a lot of velocity, as it did on Thursday morning. The aggressive sell-off in Treasury debt was paired with an equally steep fall for gold’s spot price, which has risen back above $1750/oz. There was a last burst of downward exerted on the yellow metal around the open of US markets, but just as the 10-year Note’s yields topped-out, gold again proved to have strong buying support at $1720, a level from which prices rallied through the day. By the end of the US session on Thursday, gold had recovered well but the turbulence had effectively negated all the metal’s gains from the FOMC decisions.

While the broader US stock market was roiled on Thursday, the delayed resurgence of investors fretting about Fed-driven hyperinflation once again took its biggest bite out of the NASDAQ 100, whose heavily-weighted tech giants (and other “growth stocks”) are particularly damaged by an outlook that assumes the Fed will close-off the cheap money taps much earlier than they are admitting. The Dow and S&P both turned lower, but the NASDAQ dropped more than 3% on the day, walking back a great deal of its recovery since the start of March.

Gold Prices Continue to Consolidate Ahead of the Weekend

So far, on Friday, markets seem to have corrected for Thursday’s bout of inflation fears. Around the start of European trading hours—roughly the same stretch that kicked-off Thursday’s excitement—sovereign yields pulled back again; The 10-year dipped below 1.7% again for a short while and gold was able to rise higher. Both assets have been a little more volatile to end the week, as have global equity markets which (particularly in Asia) are reacting with the trepidation we might expect to reports of a decidedly rocky interaction between high-level US and Chinese delegations. 

In another promising signal for gold as we move towards the final weeks of Q1, although bonds continue to be suppressed at the end of the week with the benchmark 10-year yield holding above 1.7%, spot prices for the yellow metal continue to consolidate around $1740/oz to end the week. While we haven’t seen a major surge in spot prices—and indeed we shouldn’t necessarily expect one—it looks like gold is building a strong platform from which to take advantage of what could be a strong 2021 for the commodities complex in general (despite this week’s weakness in oil markets, which we should acknowledge as possible headwind.)

Checking in on the stock markets to end the week: The NASDAQ seems to be recovering some of the ground lost on Thursday as the inflation fears wane again, and the S&P 500 is ticking moderately higher as well; On the other hand, the Dow Jones, which had been the stalwart of the major indices this week, is off the pace. Friday morning’s announcement from the Fed—who wanted to have just one more push on the scales this week, I suppose—that the temporary relaxation of capital requirements for US banks will expire at the end of the month (banks had hoped it would be extended) is putting a dent in the financials category, which comprises a large portion of the DJ.

DATA WRAP

With the FOMC’s 800lb gorilla in the middle of the room, economic data didn’t have much of a direct, acute impact on our primary markets this week, but there are some numbers that smart traders will factor into their models and outlooks going forward. A quick recap:

• Tuesday’s Retail Sales data showed a steeper slowdown than expected, reporting a 3% (MoM) pullback in retail spending in the US.
  
  • Because January’s already-record pop was revised even higher, analysts are mostly writing this off as a blip in between stimulus rounds for American consumers. With that in mind, there are now big expectations for a surge in the spring.
• It’s a soft-data set that we don’t closely track for gold markets, but I think it’s notable that a key survey of fund managers in the US no longer consider the COVID-19 pandemic to be biggest market risk.
  
  • Instead, rising inflation is once again the biggest concern. We can see the effect this is having in Treasury markets right now, and I haven to imagine that it also implies a steadily rising bed of buyers for gold as a hedge against the perceived risk of inflation.
• Initial Jobless Claims, reported Thursday, were far above expectations and (at 770K) worrying close to 800,000 again.
  
  • It’s never fun to say “we were right” about bad news, but if you checked-in on Monday’s weekly preview you probably saw this coming.

Next Up

The macro calendar ahead is fairly sparse, with Friday’s updated assessment of PCE inflation being the only Tier One data point on our list. That said, I expect public appearances by key FOMC participants to draw investors’ focus as markets hope to get more color around the revised macro projections and outlook for policy rates.

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.