GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, with a focus on the news and data that most impacted gold prices as well as trading for the US Dollar and other correlated assets.

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Gold prices are ending the week well below a previous line of support, having held up well through the first half of the week before bending to mounting headwinds from turning market sentiment and also renewed concerns of a US-China trade conflict that could again damage demand for the yellow metal.

So, what kind of week has it been?

Monday: Gold Prices Weakened Alongside Another Oil Rout

When I left you on Monday morning, gold prices were experiencing a sharp sell-off from the opening hour of the US stock markets as was passing below $1710/oz in the spot markets. At the time we discussed it as a surge in risk appetite that was lifting stocks higher (following the positive days for Asian and European equities) and putting pressure on the traditional safe havens like gold and US Treasuries, perhaps motivated by another weekend of tentative gains in the global fight against the Covid-19 pandemic. The real driver of gold’s dour morning would turn out to be the oil market, which we acknowledged was plummeting around on Monday morning.

The move in oil was another lesson in the importance of market liquidity. With the price of WTI crude falling again overnight, United States Oil Fund, the largest oil ETF trading, announced it would preemptively roll out of the front-month June contract and into July, flooding the active June contract with sell orders and driving its price to loses greater than 25% in the New York session. The pressure applied to the broad commodities space was felt keenly by gold, but the yellow metal saw buyers step in for support just below $1710/oz and rebounded. Prices surfed along $1712 before a rally just in front of the equity markets’ close.

Equity markets seemed largely unfazed by another drama unfolding in the energy futures markets. Choosing to trade instead on the possibly positive—but at least not deteriorating—newsflow around the effort to contain the novel coronavirus and develop treatments and vaccines, US stock indices were gainers on the day; the S&P 500 marked a six-week high.

Tuesday: Headwinds Mounted as Gold Maintained $1700 Support

With the overnight session came the Asian markets’ first chance to trade in reaction the return of instability in oil prices and selling of the overall commodities group once again put pressure on the gold and silver market. Both metals fell below major psychological support for a time—$1700/oz and $15/oz, respectively—before a sharp rebound rally in the European morning. The up-and-down signaled a battle that would reoccur through the first half of the week with gold’s safe haven shine beginning to dull as the global economic lockdown began taking steps towards easing.

#Gold consolidating around $1700/oz with s/t headwinds from easing lockdowns overshadowing the longer term bullish outlook. Large speculators now sitting on the fence after having cut net-longs by 37% since Feb peak. pic.twitter.com/8ilay8NEKc

— Ole S Hansen (@Ole_S_Hansen) April 28, 2020

The oil market’s impact on pricing for the major raw commodities remained in play on Tuesday, however. After the precious metals recovered ahead of the US trading session, the open of US markets brought the unexpected news that that markets’ single biggest commodity index, managed by S&P Global, would follow US Oil Fund’s lead and preemptively roll positions out of the active crude contract. WTI fell as low as $10/barrel in Tuesday’s futures market and the successive pressure pushed gold prices below $1700/oz once more. Again, gold would recover, and manage to hold the line closer to $1705 through the remainder of the day, while equity markets fluctuated around it.

Equity markets largely managed to take the shuddering energy markets in stride once again and focus on talk of recovery and a search for new tailwinds to continue the rally from March’s lows. A downward push from some of the biggest tech firms ultimately muted the day for US indices, however. The Dollar took a step back on Tuesday, and Treasuries saw a greater flow of buying than gold, with 10-year yields threatening to fall through 0.6% again.

Wednesday: The Fed Promised Ultra-Low Rates for the Medium Term, Gold Price Rose Again

Asia’s Wednesday session gave gold prices a lift that the Europe’s traders moderated somewhat, so that the yellow metal’s spot price was trading just below $1710/oz and silver near $15.20 as the New York trading hours began. The US’ Wednesday markets were characterized by the kind of data and announcements that will be important reference points in the months to come and in the future when analyzing the crisis we’re enduring at present—but in the moment, major asset prices were relatively unaffected.

The first of these was the government’s initial read on first-quarter growth in the US economy, which confirmed the reality of an American recession via an annualized contraction of 4.8%, nearly a full 1% below the consensus number (which, we pointed out on Monday, did have some severe downside risk.) It’s certainly not good news, and both the White House’s chief economic advisor Larry Kudlow and Fed chief Jerome Powell forewarned that the GDP data for Q2 will be “significantly worse.” Still, major markets appeared to have been mostly prepared and well-priced for the blow: gold’s chart shows some immediate but brief selling at the release, but $1700 would continue to be reliable support for the yellow metal through the pre-FOMC morning; equity priced meanwhile would be in the green and moving higher shortly after the market open an hour later, seemingly unfazed by the poor growth numbers.

Second on the dance card was the April FOMC interest rate decision and press conference. Our regular Fed Day recap can be found here. In the broadest strokes, Jerome Powell & Co. as expected announced no new actions or adjustments and instead doubled down on their commitment to continue supporting the economy as needed through the current crisis and into the phase of recovery. Interest rates on US debt initially jolted higher but gold’s response was much more orderly. Driven by the Fed’s message to expect ultra-low rates persisting into the medium term as well as a stern warning that the worst of the crisis may not have come just yet, prices climbed steadily higher post-FOMC and peaked above $1715/oz before getting pulled back gently by some profit-taking at the end of the day. The Dollar was reasonably weakened on the Fed news, while equity markets continued in-stride, still holding focus on hopes of a coronavirus drug nearing availability. The S&P would ultimately gain nearly 3% on the day.

Thursday: End of Month Profit Taking and Renewed China Concerns Broke the Dam at $1700

Thursday kicked off what’s turned out to be a strange run to close the week. First up, the ECB matched the Fed’s tone of warning from the day before but, constrained under more complicated circumstances, couldn’t echo the fervent commitment to supporting the shared currency’s economy. Investors and managers focused on the Euro zone were further disappointed as they had been expecting a formal expansion of the central bank’s asset purchase program, but instead got a more convoluted attempt at increased stimulus through cheaper funding for banks.

Following the low-impact ECB, gold prices were relatively flat to Wednesday’s close before dropping sharply against the raft of US economic data on Thursday morning. Weekly Initial Jobless Claims led the way, reporting “slightly” above estimates at 3.8 million new unemployed—good that the numbers continue to drop, bad that the six-week total for jobs lost is now over 30 million. Released at the same time, the Fed’s metric for consumer inflation softened as expected—though the core rate was somewhat stronger than anticipated—and Personal Income and Spending both fell. Concerningly, spending in particular dropped by more than expected in March and considerably more than income; this bodes poorly for April’s consumer data coming up. With equity markets not open for another hour, gold suffered a rush of selling pressure on the news, falling to support at $1700/oz.

I suspect that the initial drop in gold, which was a preamble for later in the day and then Friday’s session, was a move by large investors and managers to lock-in some profits on the last day of the month and with equity markets tipped to react poorly to the labor market and inflation data, converting strong gold gains into cash would’ve been an attractive move. Gold prices maintained their support above $1700 until, late in the US morning, the cycle repeated itself. This time, the pressure was increased by the first suggestions from Donald Trump and his White House that the administration might be seeking punitive action against China in response to perceived culpability in the global pandemic. Broadly speaking, the idea that the US government might fire the opening salvo of a renewed trade war in the middle of a global economic crisis is a strong signal to rush into safe have assets—and we’ve seen that particularly in the rate market. However, as it played out repeatedly in 2019’s conflict, a trade war with China ways particularly heavy on raw commodities and especially gold, for which a healthy China is one of the biggest buyers in the world. All considered, the weight of heavy selling and strong headwinds finally cracked the yellow metal’s support, and gold fell to the range of $1685/oz (silver lost support as well, slipping below $15/oz,) while US equities wrapped their best month since 1987 despite finishing in the intraday red.

Friday: Gold Prices Are Ending the Week Out of Gas, but Recovering from the Lows

Closing out the week, we’ve seen the same unfriendly atmosphere for gold prices persist, although prices did well to rally from a very deep drop over night that has seen the yellow metal climb back from a low mark of $1670. Buyers appear to be stepping in to support, at least as high as $1685 at the time of writing; the first trading day of the month implies less pressure for profit-taking after all. On the data front, ISM’s manufacturing index for the US is down but surprised analysts by staying above 40.0 for April’s read. And in correlated markets, gold has gotten some of its Friday morning lift from US stocks dropping on the open over yesterday’s trade war threats and some poor showings from Apple and from Amazon in yesterday’s quarterly reports. Meanwhile, oil prices for once seem to be finishing with a gain for the week.

Next Up

Next week we’ll get a look at PMI for the all-important services sector to see how it matches up to the “less bad” than expected manufacturing data from this morning. The big show for the week will be the April jobs report, which is expected to carry a double-digit unemployment rate and mark non-farm job losses for the month above 20 million. We’ll have a solid week to anticipate how gold and other risk-sensitive assets are going to react.

For now, do what you must to enjoy your weekend, traders. I’ll see everyone back here on Monday for our look at the next trading days ahead.