GoldPrice.

Happy Friday, traders.

Did I say on Monday that this could be a building week for gold? Hoooo boy. Maybe that was a typo?

At time of writing, gold spot price has failed an honest test of the 1300 level, falling toward $1290/oz after a dramatic shift to weakness in the back half of the week that coincided with the strongest USD/JPY since Christmas.

So, what kind of week had it been?

In two words: Dollar dominant. Gold markets had been trading fairly flat after losing steam on a run towards $1350 last week. As I discussed on Monday, in the overall macro environment at the time that seemed to be a positive signal for gold—major negatively correlated assets like the US Dollar and equities markets had remained calm during gold’s run-up and so either a continuation of the trend or weakness in those assets would strengthen gold’s tailwinds.

What came to be, and what I had pegged at a fairly low probability based on the week’s economic calendar, was a reminder of what so many of us have tried to declare at an end in 2019: the US Dollar is still king. The Dollar Index (DXY) is showing some overall strength this week amid mixed US macroeconomic data and news this week, and the biggest movement is seen in an absolutely ripping (highly technical term) Dollar/Yen cross.

The overpowering sentiment in risk markets over the last couple days, whether you think it’s being expressed through clenched teeth or not, is that “everything’s fine, and it’s going to keep being fine.” That’s the kind of trade that compels the Greenback to take back all of its losses against the Yen for 2019.  

Now that major psychological support as been broken at $1300, and will likely become near-term resistance, while gold spot is looking longingly at $1290/oz I suspect it will take a real shock to market sentiment to reverse course for the time being. The next week’s calendar doesn’t offer much chance of that, with the exception of exogenous shocks that can’t be reliably anticipated. (We will receive the February jobs report next Friday, but I have no reason to call for a negative shock there.) So, my best guess at the next potential pivot point for gold price action is March 12’s inflation report. It carries the double-threat of being a clean look at the health of US economic growth and also, it seems, and important indicator for the Fed and the interest rate path that will be updated at the following week’s FOMC meeting.

For now though, that’s getting ahead of ourselves. Let’s send you into the weekend with a rundown of the economic events gold traders were watching this week.

Mixed Housing Data

Tuesday’s US housing data was dour, as housing starts came in at a two-year low while the Case-Shiller index described home prices as rising at the slowest pace since 2015. The news was slightly more positive on Wednesday, with Pending Home Sales rising month-over-month (although they continue to fall compared to the same month a year ago.)

Fed Speak

The Chairman himself, Jerome Powell, was the main focus of FOMC commentary this week as he delivered his semi-annual testimony to the Senate and then the House of Representatives. As is typically the case, it was a light affair for market participants as the whole exercise tends to become a grandstanding opportunity for the elected officials. For his part, Chairman Powell confirmed the message sent in the January meeting and the minutes released last week, acknowledging that the Fed is cognizant of “cross-currents and conflicting signals” with regards to the growth of the US economy and that the Fed is prepared to take an active role in adjusting balance sheet runoff while remaining confident that the current pause to rate hikes is appropriate.

Q4 Growth Strong, Personal Spending and Manufacturing PMI Weak

US GDP growth for Q4 of 2018 bested expectations and delivered an estimated full-year GDP just around 3% and was probably the single data point that weighs the heaviest on gold this week. Less positive for the economic cycle looking forward, an uptick in Personal Income in December was countered by a further decrease in Personal Spending. As I’ve talked about before, higher income but lower spending (in December of all months) implies that the recycling of money into the economy is starting to slow in some sectors. Adding to possible growth concerns, this morning’s ISM Manufacturing PMI release suggests that the January rebound was an aberration and that the US manufacturing industry is indeed slowing as much as the December report implied.

End of the Trump bump? ISM manufacturing joins host of indicators that are at lowest level since election https://t.co/VGf64BEgfv

— MarketWatch Economy (@MKTWeconomics) March 1, 2019

US-China Trade Talks Continue

It would be irresponsible of me not to at least mention this week’s news around the trade talks between Washington and Beijing, but I want to emphasize that I think it amounts to a whole lot of rhetoric that moved markets this week but doesn’t give us much to work with looking ahead. But to recap: US Trade Representative Robert Lighthizer reported this week that talks had not broken down but were starting to reach an impasse because of China’s refusal to meet some of the US delegation’s requests regarding IP and technology transfers. To immediately contradict that news, CNBC talking head-turned-NEC Director Larry Kudlow told anyone who would listen that negotiations were moving swiftly towards a “fantastic” agreement. Because Lighthizer has been part of these negotiations while Kudlow has not, and because Kudlow has been talking about a quick resolution to trade talks with China as far back as early December, I’m not able to tell you why the markets ran with the latter’s commentary rather than the formers. I can only tell you that, based on the USD/JPY chart above, that was clearly the case.

So, traders, I head into the weekend a little confused but curious to see what next week has in store for gold markets. I’ll see you all back here on Monday for a look ahead.