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 shook off a choppy start to the week and, as a result of a week whose headlines brought attention to still-growing inflation fears among many investors as well as supportive trends in other correlated assets (primarily, a weakening US Dollar,) appear set to close the week at strong premium to Sunday evening’s opening bids.

So, what kind of week has it been?

Despite a lot of signaling on interest rate hikes, which we would typically expect to be a strongly negative input for gold prices, the yellow metal is wrapping up a week of strong gains that may allow it to consolidate further as platform above support $1800/oz. The uptrend for gold began as early as Monday afternoon, following a choppy start to the week, when Treasury yields began sliding from their peaks (the 10-year yield had reached above 1.8%.) Whether this was a result of investors stepping into cheaper bonds, or a result of the Fed disseminating Jerome Powell’s prepared remarks for Congress (or, both,) gold spot prices took advantage of the extra headroom and were able to close the session above $1800.

Tuesday’s testimony from Fed Chair Powell, as part of the hearing for his re-confirmation for another term, really offered little in the way of new information but, importantly, Powell’s remarks and responses did mostly serve to affirm the market’s anticipation of a more hawkish (cautiously or otherwise) central bank in 2022. Curiously, despite Powell continuing to show more hawkish shades, and even a pair of other FOMC officials coming out in favor of hiking rates as soon as March, Tuesday saw the start of a steep slide in the US Dollar Index that has been a key component of this week’s markets; Especially as it pertains to gold prices. While even the suggestion on higher interest rates in the near- to medium-term typically drives the Greenback higher against its major trading partners, DXY slid markedly through Tuesday’s session. US equities, Treasury bonds, and gold all benefited in counter-balance. A sharp mid-day rally brought the yellow metal to a high of $1823 before flattening out for the afternoon.

The Dollar’s reaction to another month’s CPI data coming in hot on Wednesday morning was another steep drop through the morning trading hours. This is more in-line with how we might expect USD to behave. Although gold’s chart seemed less reactive—likely because the CPI numbers arrived mostly as expected—spot prices continued to climb as the US currency weakened. Gold rose as high as $1828 on Wednesday, which would match the high mark for this week.

Taking a look at that inflation data: As we said, the most closely watched numbers were largely on-target compared to the consensus expectations outlined at the start of the week. Headline CPI inflation rose over the 12 months ending in December by 7%, but this was expected and the rate of inflation just for the month of December itself reflected a meaningful slowdown from the month before. “Core CPI,” the less volatile measure that strips out food and fuel prices, did print slightly higher than economists were projecting, both in the annual and monthly number. As has been the case for the most closely watched inflation data over the last 3-4 months, this offers two competing impulses for gold prices: On one hand, higher inflation numbers generally leads to higher inflation expectations and fears among investors, which presents an argument for buying into gold positions as a traditional inflation hedge; On the other hand, at this point in the cycle we have to read still-hot inflation data as further encouragement for the Fed to combat price pressure by tightening monetary policy and hiking interest rates, which presents and argument against buying into new gold positions as they will be less attractive in a higher-yield environment.

All of this gets to an interesting question that investors and traders active in the gold market should be asking as we close out this week: Which of these signals is dominant for gold price? And will that remain the case? It’s clear that, for most of this week, gold benefited from the market seeming to focus more on high inflation in the present and (potentially) the near-term future, even as Powell maintained his more hawkish slant and a growing number of key FOMC officials voiced support for hiking rates as soon as possible (withing the Fed’s current plans.) However, the trend may shift as early as next week; Already on Friday, we’re seeing gold’s big gains for the week tailing off a bit due to the end-of-week profit taking we might expect, but also a noticeable rebound in the US Dollar which could accelerate in the days to come.

While we move through the first trading weeks of 2022—and closer to a possible rate hike at the end of this quarter—this is likely the question that gold traders will need to ask around each important data point or new headline (particularly those out of the Fed.) And next week may give us a chance to focus primarily on this dynamic, as the holiday shortened week (Monday will be a US market holiday) will bring us a very light 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 Tuesday for our preview of the week ahead.