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 considerably lower at the end of this trading week, compared to where they began on Sunday evening, thanks to remarks and commentary from the FOMC mid-week that indicated the US’ central bankers may be positioning themselves to be more aggressive than previously expected when it comes to fighting inflation and bringing about a higher interest rate environment that challenges near- to medium-term valuations for gold as an investment. 

So, what kind of week has it been? 

Gold’s topple from a position above $1800/oz that had been held steadily since the beginning of the year was a direct result of movements from a very familiar 800-lb gorilla called the Federal Reserve. While equity markets in the US took a thrashing as investors and managers lamented already-elevated Treasury rates even before the FOMC’s announcements, gold prices (and even Treasuries themselves) sad relatively steady through Monday and Tuesday’s trading. 

As Fed day arrived, we saw gold prices weaken in the morning as a result of last-minute position-swapping ahead of what was expected to be an aggressive FOMC coming out of their two-day meeting. Gold slid more than $15/oz in the spot market during this preamble which began with early trading hours in New York; The yellow metal’s quick slide, combined with the reality that, even before the fretting and hand-wringing in Monday’s equity markets, investors seemed mostly prepared for a hawkish Fed, may have led many to assume that gold prices would absorb the content of Jerome Powell & Company’s announcements and commentary without taking further loses. This, of course, was not the case. 

When the Fed met the market’s expectation—and then some—for the central bank to continue to signal intent to aggressively combat inflation, US Treasury yields spiked (as did the US Dollar,) immediately pushing the 10-year yield well above 1.85% and sending shorter-term yields running higher as well. Gold prices collapsed alongside bonds, just as we have come to expect. The initial drop for gold came in the first 90 minutes post-FOMC; at a temporary floor around $1820/oz, the yellow metal held steady through the US market close and the early evening hours. Once the major overseas markets (especially in Europe) had their chance to digest the Fed news, gold continued to weaken and roll lower ever as bond prices slowly rebounded. Thursday morning’s early US trading hours allowed gold to slip lower than $1805 and the start of cash trading for the day accelerated the post-FOMC slide once again—this time pushing gold below support at $1800/oz. 

What sent gold markets—and, for time on Wednesday afternoon, stock markets—reeling was that the FOMC not only hinted that they are likely to announce the first rate hike since 2018 following their next meeting in March, but that the central bank also employed language that leads some to believe that they may be considering a policy path for 2022 that sees rate hikes at consecutive meetings at some point. The Fed’s standard pattern—only hiking every-other meeting at most, in order to let markets absorb the effect of each—would allow for four hikes in 2022, a projection that has been becoming more widely held by financial analysts as inflation remains high. Should the FOMC decide to hike in consecutive meetings, as it appears Chairman Powell hinted at on Wednesday, that might allow them to push as many as seven hikes this year. The Chairman’s pledging that the Fed will remain aggressive and “nimble” in its effort to cool inflation in the US economy, has been a strong bearish signal for the gold market, given how poorly the yellow metal tends to fair (relatively speaking) in the kind of high(er) interest rate environments that it appears may be coming faster upon us. 

At the end of the week (and looking ahead to the weeks to come,) the Fed has left us with an unexpected degree of uncertainty—not over whether they will likely start hiking interest rates soon, but how aggressive, even beyond what was previously thought to be “acceptable” by the FOMC, they will be in hiking rates through at least the first half of 2022 to lower inflation in the US economy.  

Gold prices are closing out the week in a nadir, having slid a bit further in the early hours of Friday morning as Treasury yields briefly rebounded towards 1.85% again (alongside climbing yields for government paper in the EU and the UK,) and the US trading session has left gold flat at levels just below $1790/oz. 

Next week, the data calendar will require investors and economists to turn their immediate attention away from inflation and towards the other key metric tied to the Fed’s mandate: the labor market. While the Fed seemed willing this week to brush off a poor start to 2022 for stock market values as a reason to slow the pace of tightening, a real stutter in the labor market recovery might force them to be more thoughtful. Next Friday’s Jobs Report for the month of January could present such a challenge, and investors will be paying extra close attention to it after more than a month of steadily-rising unemployment claims.   

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.