GoldPrice.

Happy Friday, traders. With markets turning their gaze towards (probably) another “adjustment” to short-term interest rates next week, gold prices have shrugged off a low-energy week to regain an important price level despite some strong selling this morning.

So, what kind of week has it been?

Gold Prices Were Listless and Lazy to Start the Week, In Search of New Market Trends

The lazy start to Monday’s trading proved to be a smaller modeling of the majority of gold’s trading week as prices spent the larger part of Monday and Tuesday’s sessions moving sideways around the level of $1485/oz. Often times that round(er) number acted as a cap of resistance to the yellow metal’s spot price.

Overall, it seemed clear that, in contrast to most of the other major safe haven assets, the gold market came into the week somewhat directionless as the market moves into the next phase following such a bull summer. Typically, gold needs some collaborative forces in its corner to get moving higher in periods like this where a longer-term rally has been exhausted. On Monday, there weren’t any co-players to be found: another solid day of earnings reports in the US equity markets took what was already a general risk-on mood and ran with it, boosting the Greenback alongside all major stock exchanges; yields on the US 10 year were reaching as high as 1.8% at the same time.

There are, of course, two sides to every Krugerrand and while most of the week had run its course before gold’s spot price found any upward movement, we also never saw much threat of the yellow metal moving to a lower level either; this is of course thanks to the reality that despite the performance of risk assets this week, the underlying tension around trade and geopolitics that his supported gold prices in recent months very much remains.

Tuesday’s overall market was a little more mixed, particularly as the performance of major corporate earnings reports were more varied, as was the light trickle of US macroeconomic data for the morning. The monthly data for Existing Home Sales was somewhat uglier than expected, while at the same time (literally) the Richmond Fed’s Manufacturing Index came in much stronger than consensus, scoring +8.0 where the majority of analysts were looking for a double-digit negative. It quickly became clear that the US Dollar-positive force of the Richmond Fed data would be the dominant driver, as the Greenback gained ground as gold gave back some early morning gains from Brexit uncertainty in the European session.

As it had all day Monday, gold prices would spend most of Tuesday morning trading around $1485/oz before a mid-afternoon run of headlines around what appears to be particularly damning testimony in the course of the US House’s impeachment investigation arrived. The general unease that was injected into the market would begin an afternoon rally for gold prices that would roll on through the overnight trading hours and ultimately drive the yellow metal to $1490/oz and higher in Wednesday’s spot market, setting the table for gold’s late week run.

Wednesday’s news and data flow, in fact, was mostly unremarkable from a gold or Dollar trader’s perspective. But, while day three of earnings week was decidedly more positive and US equities were all green, the risk markets (particularly currencies) couldn’t shake a feeling of concern as economic data out of Japan as well as the core of Europe indicated further weakening of global growth. The two opposing forces—in the immediate term, a session of gains for the major US stock indices; looking down the road, the persistence of economic growth concerns—played tug-o-war in the gold markets through Wednesday’s trading, at times pushing prices at high as $1495, but there setting a cap.

Gold Prices Move Higher on Global Growth Concerns, Expectations of Lower Rates

Thursday morning brought a marked shift in the motivation and sentiment of the gold market alongside other currencies, and for my money (so to speak) that shift was largely driven by Mario Draghi’s final post-meeting press conference as President of the ECB. While the central bank took no action this time around, and Draghi argued that the markets’ functions since the new round of quantitative easing announced last time out confirmed that their moves in September were the correct ones, he nonetheless took a dovishly guarded tone when talking about the near- and medium-term outlook for growth and inflation not only in the Euro Zone but globally; to say nothing of the fact that he is departing an ECB that looks at least as divided as the Federal Reserve.

I would argue that Draghi’s dovishness on Thursday morning fully turned the heads of analysts and investors towards next week’s FOMC meeting, and possible actions of Powell & Co. It would certainly help to explain strong march higher on Thursday—to first approach, and then supplant and hold the important $1500/oz level during US trading—despite a decent day for the dollar, a lukewarm series of mid-tier economic data, and a mostly healthy session for risk assets. With the volume growing on calls for the Fed to phone-in one more 0.25% cut to short-term rates before setting a pause, I suspect the move higher in gold prices at the end of the week was driven by the preemptive flow of positions into gold and other assets that typically see a move higher when Treasury rates come down.

Friday’s trading, though, has been a good indication of just how uncommitted I think the economy (the US economy, specifically) is about the practical need for another rate cut next week—regardless of how much equity markets want more easy money. The European session saw some more lift in gold prices as the yellow metal reached higher to $1505/oz on yet more (ever more) Brexit-bound uncertainty—the deadline for the UK to crash out of Europe is still, technically, due on Thursday.

Next Week’s Presumed Rate Cut as Boost for Gold Prices, But Maybe a Brief One

With the growing flow of pre-FOMC trades into the safe haven of gold, helped along to some degree by a fear trade on the news of the leviathan Amazon Inc.’s first failure to print a quarterly profit since 2017, the gains in gold’s spot price accelerated past even $1515/oz ahead of the US stock market’s open. As soon as cash trading opened, however, the yellow metal was immediately pulled back as equities and the Dollar stepped higher once again and risk appetite burst back into the market. The profit-taking that we see so often to wrap up a week of gains in the gold market came a few hours early and prices fell back, but ultimately found solid support at respectable levels: $1505 for gold, $18.00 for silver as we head into the weekend.

As I said, I think Friday’s gold chart has been a function of risk markets reasonable assessment of the FOMC ahead of next week’s meeting. If we take a third “mid-cycle adjustment” cut as a given—I don’t think we should, by the way, but that’s talk for another time or maybe a Macroeconomics 202 lecture— then rational traders have to assume that it will be tempered by clarification from the Fed that we’re unlikely to see further, more aggressive easing for the rest of 2019 and into early 2020. There have been no dire signals from US inflation, the labor market, or most of the Fed’s other preferred metrics; at the same time, the S&P closing October at 3000 and the Dow tilting back towards 27,000. The American economy may not being booming, but at the same time it seems very hard to argue that there’s a need for more cheap money in the system, and keep a straight face. Knowing that, there’s a tight lid on the policy-driven upside for assets like gold.

Next Up

There are, of course, other possible motivators for another gold rally—namely the tension around US-China trade talks, and the rising sense of geopolitical instability—which laid mostly quiet this week, but we will certainly continue tracking into next week. Speaking which, the upcoming five trading days will bring us a slate of economic data that MIT’s economics department would refer to as “an absolute banger”: we’ll get the aforementioned FOMC meeting on Wednesday, followed by the Jobs Report on Friday.

Until then, traders, get out there and enjoy your weekend. I’ll see you all back here on Monday for a look at the week ahead.