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 other key correlated assets—and may continue to into the future.

While still holding on to some gains from earlier sessions, Friday trading has seen gold prices dropping quickly, snuffing out hope that the yellow metal would be able to turn in one of its more positive weekly performances in the last month.

So, What Kind of a Week Has it Been?

This holiday-shortened week has offered a case study in what have been the two dominant drivers of the gold market for the last month or so: investors’ concern over the theoretical risk of calamity if a collision with the US debt ceiling were to trigger a US Treasury default, and investors and economists’ efforts to project the near- to medium-term FOMC policy path. (Obviously, the FOMC-reaction function has been a key mover for gold prices for many months now, but the particular focus on whether or not the Fed will forgo a rate hike at this month’s meeting is the most recent flavor.) Unfortunately for anyone hoping that the input of US fiscal wrangling would provide a counter to the iron grip that US monetary policy has on the yellow metal (among other major asset classes,) this week’s activity and headlines confirmed that negotiations in Washington were really only ever going to end one way, and always had a small window of influence that has now come to an end.

To review: because of gold’s sensitivity to the US Dollar (which is itself influenced heavily by US monetary policy as captained by the FOMC) over the last 12+ months of the Fed’s aggressive tightening via rate hikes, the market’s sentiment around when the central bank will turn back to easing financial conditions has become foundational to the market’s sentiment about the shiny metal itself. And, as a result, it’s price-action. Most every time the Fed has imposed on markets its expectation that rates will remain higher for longer has been met with a negative reaction in gold as the US currency lifted higher; most every allowance for “optimism” that the Fed will pause and then begin lowering interest rates earlier than forecasted has contributed to a rally in gold.

Of late, the obstinance and squabbling in Washington around the uniquely arbitrary “debt ceiling” for US government spending has been a second narrative in gold’s chart. And, due to two reaction functions that have historically boosted prices— gold’s attractiveness as a safe-haven amid concerns about economic instability (such as a sovereign default being the issuer of the global reserve currency) and investors’ preference for gold in lower rates environments (which would be expected to arrive on an accelerated timeline if the Fed were forced to quickly reduce pressure on the US economy by cutting rates)— this input was often a tailwind for gold prices to offset headwinds from monetary policy projection.

For much of this week from Tuesday, that upward pressure for gold prices won out. With markets re-opening in full, investors had their first opportunity to buy or sell the news from the weekend of an agreement between the heads of the US executive and legislative branches to “raise” the debt ceiling. Surprisingly, for gold, this drove a gain of roughly $20/oz in Tuesday’s trading before the precious metal settled and consolidated around $1960 in the spot markets. This may have been due to consistent media coverage (which mouthpieces for both sides of the aisle were happy to seize upon) around the possible hitch that the agreement (in bill form) would still have to be passed by both the House and the Senate to take effect and relieve the perceived risks. On Wednesday, the final trading day of May, the gold market had a more mellow session as investors and managers began positioning for some combination of the “final” resolution of the debt negotiations and the upcoming May Jobs Report.

Although there was little in the way of narrative shifts around the debt ceiling bill, chatter from the Federal Reserve picked up, with a handful of comments made in public appearances from relevant FOMC participants that lent more weight to the suggestion that the committee consensus may be growing more comfortable with the idea that it would be reasonable— if not prudent— to put a pause on the rate-hiking cycle in two week’s time. As the US Dollar weakened and rolled back a bit in the wake of this headline flow, gold spot prices seasoned on the opportunity for another rally, even in the face of news that the debt ceiling bill was all but certain to pass through Congress after all, and would go on to close the first trading day of the summer near to $1980/oz, en route to what was shaping up to be the commodity’s best week in the last month or so.

From here, it looked like there was a better-than-zero possibility of a smooth cruise into the weekend for gold, with prices being allowed the opportunity to consolidate the shot week’s gains. However, with the debt ceiling dramatics coming to a close, gold was also losing the narrative of potential instability that could have been driving more investors into making bids for gold as a safe haven. As of Friday, it’s unclear if that would have mattered.

Even adjusting for the fact that the monthly non-farm payrolls number has consistently, for more than a year, beat the consensus expectation my meaningful amounts, the number of non-farm jobs added to the US economy in May, per the Jobs Report, blew the doors off of the consensus number (coming in at +339K vs., expectations for a number below 200K.) Now, the Fed is certainly not going to decide to continue with another interest rate hike in June after all because the most-watched metric for US jobs is painting a picture of a robust, super-tight labor market (although, classically, that would imply higher inflation) but it certainly could allow any FOMC members who are on the fence to get more comfortable with continuing to hike through the summer. The US Dollar has ripped higher in response, and although equity markets appear unbothered by the strengthening Greenback, gold prices are down sharply on the day. With bids in the neighborhood of $1950, the chart is now eating into the gains from even Tuesday.

Next week, the gold market returns to a kind of vacuum; not only is the debt ceiling narrative all but removed from the field, but the FOMC will be entering its “quiet period” ahead of the June meeting, leaving investors in traders in gold and elsewhere without little more than a week of rumors and table-setting ahead of the Fed.

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 for next week’s recap.