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 have suffered one of the roughest four-day runs in months, as the US Dollar’s blazing bull run found new fuel after the Fourth of July holiday.

So, what kind of week has it been?

It’s simply been a destructive week for the gold market; more than we might have expected even if we had a sneak peek at what the News of the Week would be. Following a few weeks of rough waters, particularly for the yellow metal (and big sections of the US stock market, but really for just about anything but the US Dollar on a rampage,) the key focal point ahead of Friday’s June Jobs Report was a set of FOMC discussion notes from the committee’s June meeting. Those notes and meeting minutes arrived looking very outdated and only seemed to leave investors and managers confused in the current market context.

As Other Asset Classes Floated Higher, the Dollar Dragged Gold to the Depths

It looked, initially, like we might be in for another rocky week for risk assets, as first global stocks and then the start of trading in US equity markets were shaky at the outset, before sorting things out and turning in a mixed performance for Tuesday, followed by a mild rise in all three major US indexes on Wednesday. Any kind of green lights on the stock charts were a welcome (if not entirely expected) sign, given the hard charge that the US Dollar has been on since Tuesday. The Greenback has found a new gear of acceleration to build on an already strong summer rally. On Thursday, the USDX is marked above 107 for the first time in 20 years.

Gold prices have not exhibited the same resilience that we’ve seen in large pockets of the stock market. Under pressure from the soaring Dollar and deepening shifts in market sentiment, the spot price for gold has fallen roughly $60/oz since Tuesday—well away from previous support at $1800—before appearing to consolidate into support at $1740. Commodities in general have been under a crush this week: Copper prices are at their lowest in well over a year, and crude oil by the barrel fell below $100 and then $90/bb this week.

Up until mid-June, commodities (orange) were outpacing equities (blue) by a significant degree, but have plunged from peak as stocks have rebounded slightly
[Past performance is no guarantee of future results] pic.twitter.com/tN9SXnaSp5

— Liz Ann Sonders (@LizAnnSonders) July 8, 2022

 The commodities classes seem to be bearing the biggest brunt of USD’s strength this week, while traders, economists, and other market participants debate whether the collective softening is a more direct signal of inflation really easing, or a recession really arriving. The relative peace of Thursday and Friday’s trading in the gold market—a steadily sideways trade along support at $1740/oz when you smooth out Friday morning’s post-Jobs volatility—could be a promising signal for gold (it’s not hard to find people touting how “oversold” the precious metal is by now) because it’s a vast improvement on the Tuesday-Wednesday collapse. But, like most of the commodities complex, gold’s ability to recover from this week’s beating will depend in a big way on whether or not the soaring US Dollar allows it even an inch of room to stretch its legs.

Mixed Minutes and Fuzzy Signals

So, why were the FOMC minutes so confusing? Well, for this time at least, we can say that it is unequivocally not the Fed’s fault. The truth is that the “moment” of June’s FOMC meeting, with its 75 basis-point hike and aggressive, hawkish tone, feels very different from this current market mood, to investors. Not even the Fed can fight the passing of time, we suppose. In the intervening weeks, it’s safe to say that fears of a recession have grown and become much more tangible, which could lead to a less gung-ho FOMC by the time we get to Jackson Hole in August, if not before. On the other hand, the mild optimism we’ve seen in US stocks this week—which continued on Thursday with the strongest session (so far) out of the three - is being led by signals from other instruments and asset classes that inflation may have really, finally, peaked. (Which would suggest less need for the Fed to hike so aggressively through the end of 2022.)

Joining falling commodities and (moderately) rising equities in the “Is this deflation?” camp has been the market for US Treasuries. We are seeing Treasury yields rise as prices fall; a result of investors closing out of more defensive positions in US debt as optimism—or at least an appetite for risk—creeps back in. From a more technical perspective, Treasury breakeven spreads (which indicate expectations for future inflation) have slid to the thinnest margin in a month.

The US Labor Market is Keeping the Fed’s Path Clear

The June Jobs Report released Friday morning (as far as the time of writing) has mostly served to reiterate, if not amplify, these trend lines. According to the NFP data, the US economy added 372,000 jobs in the month of June, more than 100K above the consensus expectation. In the eyes of investors and money managers, this appears to be pulling the double duty of reassuring recently nervous parties that (so far) the Fed’s aggressive tightening hasn’t done the damage to the path of economic growth that many feared, and ensuring that the FOMC still has the runway to go with another +0.75% hike later this month (which is keeping the Dollar well-supported near the recent highs.)

The June jobs report keeps the Fed on track to raise rates by another 75 basis points in July https://t.co/41pECNfSd4

— Nick Timiraos (@NickTimiraos) July 8, 2022

Stocks are slightly off the pace on Friday, but that appears to be more a factor of optimism about future growth (and Fed rate hikes, for some) being played out via deep selling in the Treasury market—where the 10-year yield has returned to 3%-- rather than in equities. The mix of signals this morning is also releasing the pressure on some of this week’s most roughly-treated assets: you might have to squint, given how Tuesday and Wednesday’s slides have distorted the chart, but gold prices are making their first recognizable steps higher since midweek.

Next Up

So much of this week’s trading, across financial markets, felt predicated on the suddenly felt belief that decades-high inflation has peaked (in the US, at least.) This notion will be directly tested next week, with the release of CPI inflation data for June.

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.