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 are holding below their $1740 start to the week, but have demonstrated consistent support and may be continuing to consolidate while the yellow metal (and other key commodities) look for a catalyst to the upside. Another jump in Treasury market volatility that pushed yields well above 1.7%, however, may remain a big downside risk for prices going into April.

So, what kind of week has it been?

Recent Pressures on Gold Prices Eased at the Start of the Week

Monday’s trading day carried on very much the same as we left it with our weekly preview piece; Which is to say: Signaling what’s turned out to be a fairly calm day week for metals, relative to what March has been so far. As we kept an eye on the motion of US Treasury markets, that asset class has exerted the strongest influence on gold prices recently, it was clear that buyers were more active and interested in the “riskless” sovereign bonds. Yields on the benchmark 10-year Treasury note made multiple attempts through the day (as the bonds themselves were being sold-off) to run back above 1.7%-- putting pressure on gold prices each time,) but to little success. As we noted on Monday, the softening of key headwind for gold allowed the yellow metal to rally through the US trading session, taking back most of its overnight losses and closing the day at $1740/oz in the spot market. Silver rallied as well and climbed back to $25.75.

Also benefiting from greater calm in Treasury markets, US equities rose on Monday with all three key benchmarks finishing in the green. The tech-focused NASDAQ 100 lead the line. Separate from the generally positive mood of markets,

Gloomy Market Sentiment Rallied the US Dollar and Treasury Yields, Denting the Gold Rally

Despite what seemed (at the time) like a generally positive mood for markets during US trading on Monday, global investors were growing concerned about a steady flow of worrying news—the world, and its interconnected economies, certainly seem to be on track to exit the pandemic crises of 2020, but how slow will the march be?: Extended lockdowns in key European centers where vaccination efforts are lagging behind; growing tensions between the UK and the EU over the free trade of vaccines and other key medical supplies; Questions about the validity of vaccine trial data at a time when resistance to vaccination is already unfathomably high in the developed world. All these concerns were clearly on the mind of investors as Asian and European equity markets weakened throughout their respective Tuesday trading sessions.  

From the start of trading hours in Asia, it was clear that the preferred vehicles of safety for investors were the US Dollar and its Treasury’s debt. Gold prices initially enjoyed strong support around $1740 while the benchmark 10-year yield dropped well below 1.65% as Monday’s rebalancing in the bond market became Tuesday’s de-risking.

The pendulum swung back to risk-on activity as US-based traders took over for the day and made a brief go at a more positive market view: Although the Greenback continued to strengthen at a moderate pace, US equities began the day on the front foot and the pace of selling in Treasuries pushed yields back above 1.65% in the morning. As we’ve seen so many times this month, weakness in the bond market (expressed in those rebounding yields) drove weakness in gold, and spot prices dropped sharply ahead of the start of cash trading for US stock markets. The yellow metal fell steadily until finding support at $1725/oz. (Silver had a tougher time, not finding many buyers before $25.)

By mid-afternoon in New York, the pessimism that had roiled overseas investors and managers rippled across the US markets. A re-accelerated flight to safety drove the Dollar to higher levels and pushed 10-year yields back as low as 1.62%; A day of losses across most sectors of the stock market almost exactly mirrored Monday’s gains, with the NASDAQ shedding just over 1% for the session while the Dow and the S&P 500’s losses were slightly less. The precious metals were left out of the pivot back to safety almost entirely. Though held steady, gold would close the session just short of a return to $1730/oz. While there wasn’t a clear counterweight that prevented gold prices from climbing, it could easily have been a combination of forces. Primarily, the constant strength of the US Dollar, and a broader weakening across the raw commodities complex that passed through from dropping oil prices on Tuesday.

Markets Went on to Waffle Between Monday’s Hope and Tuesday’s Worries

So: We had a day of feeling good (Monday,) and a day for feeling bad (Tuesday) to start the week. On Wednesday both forces of sentiment took turns driving the markets—hope and optimism that the most recent hurdles to global vaccination efforts are being cleared and, combined with massive pushes of fiscal stimulus, will lead to booming growth in the US and other developed markets this year; and the constricting fear that it won’t happen fast enough to avoid at least one more wave of pain and instability in Europe and elsewhere. As a result, most of the major asset classes we follow here had a mixed day of ups and downs; Because every sharp move was tempered by the opposite impulse, nothing really broke out of a relatively tight range of trading (with the exception of the NASDAQ, which had a no good, very bad day.)

The result was a net gain in the price of gold, which pared some of its biggest gains on the day but ultimately closed the session with some room above $1730/oz. US Treasury yields initially traded higher in the morning but failed to reach 1.65% and buyers became the dominant force, pushing bond priced higher in the afternoon.

US stock markets traded with some chop as well, but all three key benchmarks turned in a loss for the day. The pain was not equally shared, however, as investors clearly preferred cyclical favorites (financials, energy producers, etc.) over the names that have benefited the most from the year that America spent stuck at home (Zoom and DocuSign, to name a pair.) While the growth-driven NASDAQ dropped as much as 2% on the day, the Dow Jones Industrial Average was down less than 0.2%. A rising Dollar, and possibly a rebounding crude oil market, likely contributed to the tough day for stocks overall, and the distinction between losers and worse losers. Even three days into what’s become a saga, it’s tough to say just how big an impact a traffic jam at the Suez Canal (a literal linchpin in the global supply chain) might have for commodities markets; But we can definitely credit it for the rebound we saw in oil prices mid-week.

Recovering Treasury Yields Again Became the Key Decider of Gold’s Direction

Through the morning hours of the US trading session on Thursday, markets had further vacillations to work out of the system; Again, though, while the direction of major assets turned back-and-forth most charts remained within conservative boundaries. By mid-day, markets had smoothed out.

Immediate concerns about hyperinflation continued to wane—or, at least the market positioning for such outlooks did—and yields on the benchmark 10-year Treasury note fell below 1.6% early Thursday morning. This unexpected shift was the most apparent catalyst for a sudden and sharp rally in gold prices, which had slipped just below Wednesday’s closing prices during overnight trading but now ripped as high as $1744/oz as the inverse relationship between Treasury yields and the gold prices kicked into play. Silver, which had been in search of reliable support since falling through $25 mid-week, spiked as well and retook that key level in the spot market.

However, the open for US stock markets proved to be corrective and a blow against any gold rally for the day. Almost immediately sellers stepped into the Treasury market; Whether it was a move in advance of the 7-year Treasury note auction (the prior month’s, which was woefully undersubscribed, has been pointed to as an initial source of this the volatile Treasury markets that have defined March so far,) or just straight-up profit taking is unclear and immaterial. As yields started to climb back to 1.6% (and the US Dollar rallied again as well,) stocks tumbled and gold prices did too. The yellow metal’s slide lower was a steady one in search of buyers and support, which it again found at $1725—we’ll consider that as fairly reliable support for now—where it remained for most of the day’s remainder. Interestingly, silver did not suffer the same selling pressures as its usual partner and, in fact, retained most of its gains for the early morning pop. This kind of separation between the two precious metals is almost always related to silver’s use as an industrial commodity, and I suspect that in this case silver was buoyed by growing concerns about stress to the global supply chain as optimism that the shipping crisis in the Suez Canal could be dealt with swiftly faltered.

In equity markets, the key indexes had been under some consistent pressure in the morning (from the rising Dollar and rebounding interest rates, among other less macro-focused issues,) but managed to turn higher in the afternoon and close the session in the green. Again, the rise in 10-year yields was a clear headwind for the mega-caps in the tech sector and only allowed the NASDAQ to pick up just over 0.1%. The S&P and the Dow didn’t enjoy major gains by any means—neither cleared +1%-- but their heavier weighting of cyclical and pro-reflation stocks allowed a little more upward momentum.

Markets on Friday Look Ahead to Next Week’s Unknowns but Seem Broadly Positive

Wrapping up the week, we look to be closing out our first five-day stretch in a while that hasn’t involved some kind of an acute shock to financial markets either through volatility in a major asset class like US Treasuries or else the realization of some kind of headline risk. Yes, the lock-up in the Suez Canal will continue to be an ongoing concern for at least a week, but its impact on a global supply chain that’s already been thrown off-balance by the Covid-19 pandemic will be slower to form and slower to be felt in developed markets.

With that relative sense of calm, we see investors are largely looking past concerns about inflation expectations, vaccine rollout hiccups, and a beached super-freighter to continue bidding equity markets higher both in the US and abroad. At the time of writing (mid-day on Friday,) the US’ major benchmarks are all up by at least 0.5%. With a weakening Dollar also supporting stocks’ climb, gold has been able to pare some of the week’s losses as well. The yellow metal currently trades above $1730/oz once again. US Treasury rates do continue to rebound, the 10 -year having moved back above 1.65% overnight. While the occasional pull-back in gold prices on Friday has corresponded with spikes in US yields, buyers seem to be more dominant in the bond market and this is allowing gold to hold higher levels.

Data Wrap

We’ve had another week in which the key macroeconomic releases had little immediate impact on gold or its most correlated assets; But, given the constantly reaffirmed stance of Jerome Powell and the Fed—that their full arsenal of financial easing will remain in use until a strong, persistent recovering in inflation and the labor market is evident—these reads are useful data points for constructing an outlook for the pace of monetary policy and the US economy.

• Initial jobless claims fell more than expected for a second week in a row, this time printing below 700,000 and at the lowest level since Covid-19 lockdowns began a year ago.

  • While still holding below 800K, last week’s number was also revised higher. I’m cautiously optimistic, but this is a good sign for improvement in the labor market that is still lagging brutally behind its pre-pandemic levels.
• While the headline number was a slight beat, core US inflation as measured by the Fed’s PCE data looks a little bit weaker than analysts expected.
  
  • For those building reasonable models, this further supports the Fed’s consensus projection of “lowest rates for a while longer.” For those who, at the end of this week, are still warning about inflation in 2021… I’m not sure there’s much to be helped.

Next Up

We’ll keep an eye on Treasury markets as a key signal for gold and silver prices next week, and developments around the Suez Canal debacle and another slate of appearances by FOMC officials will draw our attention in the headlines. On the macroeconomic data slate, the big focus will be on the March Jobs Report, due Friday.

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.