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.

Gold prices are sharply higher on Friday afternoon, after a disappointing CPI report shows inflation pressures at the highest level since 1981, by some measurements. The disappointment has sent a surge into gold and other risk-off assets, breaking the duck of an otherwise dull run of trading sessions.

So, what kind of week has it been?

If it weren’t for the new inflation numbers released on Friday morning, we probably would have had only a couple of sentences to cover the week’s markets: Folks got a little excited about China reopening, but then started worrying a little bit about inflation again. Markets looked mostly flat.

CPI COMES IN HOT

Core gains 0.6% VS. 0.5% EXPECTED.

Headline grows 1% vs. 0.7% expected

On a year-over-year basis, it's 8.6% headline and 6.0% core.

— Joe Weisenthal (@TheStalwart) June 10, 2022

Of course, with gold on Friday afternoon ticking at a premium to last week’s prices of nearly $30/oz (most of which has come through on Friday morning,) it’s clear that market conditions have become something other than copacetic.

After some initial card-shuffling following the CPI print, the price action for most major assets went just as we would expect: Treasury yields are rising high while the US Dollar tears the roof off; equity markets are being routed at the end of the week; gold spot prices are, at the time of writing, trading over $1870/oz for just the second time in a month.

ok, well...I guess we weren't at peak CPI yet. M/M headline +1%; Y/Y up to 8.6%. Core slipped, but not as far as expected. To 6.01%. The decline is base effects. Bad news is that this is the HIGHEST m/m core CPI since last June. pic.twitter.com/92Va9dKiXA

— Michael Ashton (@inflation_guy) June 10, 2022

Investors in recent weeks had turned their worrying minds towards concerns about the risk of a “Fed-induced” recession that would come on the back of the Fed hiking interest rates, rather than fears about inflation remaining near these 40-year highs, but Friday’s data snapped focus right back to doom-planning around the potential for super-inflated prices. (In reality, the marketplace was already expressing some angst about inflation in the way that positions were set ahead of the new inflation data as US stocks slid more than 2% on Thursday.) Gold as an investment has enjoyed one of the most impactful boosts from this pivot back to inflation fretting: the release of a new CPI data drove gold’s price chart off of recent lows right away, but it was around the release of this month’s Consumer Sentiment surveys—seeing inflation expectations in the economy moving considerably higher—which sent the yellow metal off on Friday’s rocket ride, as investors and managers rushed back to gold, raising demand to fulfill its traditional role as an inflation hedge.

Of course, we make no mistake in saying that gold enjoyed one of the strongest tailwinds on Friday: One could say that a $30/oz gold rally today was actually muted because the yellow metal’s momentum was capped by a major surge in the US Dollar Index at the same time. (In a rush of “safety” for which USD cash is an option, King Dollar tends to trump even the most traditional havens in precious metals.) Although stubborn inflation isn’t a positive for the US economy in general, it has been driving the Dollar higher on Friday as part of a reaction to expectations for the Fed. This week was almost certainly too late for any one date point to alter the FOMC’s (assumed) plan to hike by another 50-points following next week’s meeting, but Friday’s eye-watering inflation numbers surely must raise the odds the Fed will continue with these consecutive “double hikes” not only through the summer but into Q3 of 2022; analysts are already started to shift their base cases in that direction and the Dollar on a bull run (while stocks and bond prices deteriorate) is the result of investors reacting accordingly.

Next Up

How strong this pressure behind the USD, driven by Fed expectations, will continue to be an important input for gold prices. We already saw in the first quarter of this year how the yellow metal can ride the hot air from inflation worries higher—as high as $2000/oz, remember—when the Dollar is less aggressive. How the FOMC comes out and addresses the larger appraisal of its fight against inflation, while maybe directly addressing Friday’s CPI letdown, could dampen the Dollar enough to give gold room to run; or else it could send the Dollar higher and gold into a slide if the central bank hints are more aggressive plans in the quarters ahead.

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.