GoldPrice.

Happy Friday, traders.

What kind of week has it been?

At the end of a generally quiet week for financial markets gold price has fallen to levels considerably below $1300/oz after a promising start to the week and an attempt to set a toe-hold above the major psychological level.

It’s a truism of trading, proven out once again this week, that a failed breakout is most reliably followed by a steep sell-off in assets like gold that rely so heavily on market sentiment.

Flashy Headline Numbers Give Way to Confirmation of Still-Muted Inflation

The big data-point for the US economy and for gold trader this week was an update to the assessment of price inflation on both the consumer and producer sides. Wednesday morning’s report on Consumer Price Inflation confirmed the largest month-over-month rise in the measurement for over a year when examining the headline number, spurred on by rising costs of fuel as well as food and rent.

While faster-rising overall inflation in the current macroeconomic environment should, on its own, create an immediate headwind for gold, price action following the release saw the start of another leg up for the yellow metal that would later in the day lead to a test of resistance at $1310, all driven by the closer inspection of the inflation data. “Core” inflation—the CPI data presented without the volatile components of food and energy costs—printed much more in line with the recent narrative of “muted” inflation pressures that the Fed perceives as its permission to keep rate hikes on hold for the time being. “The tame inflation environment and moderating economic activity,” writes Reuters, “support the Federal Reserve’s decision last month to suspend its three-year campaign to raise interest rates.” Investors seemed willing to build or at least hold long gold positions in light of this interpretation as the assumption that short-term rates aren’t being raised any time soon implies that negatively-correlated assets like gold have a greater upside potential instead.

The overall measures of Producer Price Inflation also increased by greater margins than expected in March, as reported on Thursday morning, but like the more closely-tracked Consumer variation the less-volatile “core” data reflected the continuation of flat-ish inflation inputs for the US economy. Currency and metals markets’ response to PPI is always much more subdued than to CPI data, and by Thursday morning gold prices were already falling sharply from Wednesday’s failed attempt at $1310; that momentum, coupled with another historically low Initial Jobless Claims number, easily over-powered any support that prices might have gotten from a generally gold-positive PPI report.

The Fed Keeps Everything on the Table

By Wednesday afternoon, gold price had taken what turned out to be it’s one shot for (at least) the week at rising above the $1310/oz level in spot markets and, having failed there, fallen to $1309. There may have been another run in the shiny stuff, but the release of FOMC minutes from March carried an unexpectedly hawkish undercurrent which boosted US Dollar markets and knocked another $3 out of the going price; I’ll point you towards my colleague Ryan Page’s Wednesday afternoon recap of the minutes for more detail but the biggest points for me is the explicit mention that some members of the committee, in the right circumstance, might “judge it appropriate to raise the target range for the federal funds rate modestly later this year.”

I have to say that I was surprised to see so many market participants pricing in a rate cut by the end of this year, a theoretical option that Navy Federal Credit Union economist Robert Frick tells CNBC is now “probably just wishful thinking” following the March minutes’ release. I very much agree.

It is, of course, a major simplification of the economic mechanism involved but still empirically true that short-term rates (that is, yield) and gold prices are negatively correlated; so the Fed’s clarification that at least one hike is still mostly “on the table” for 2019 put a heavy dent in whatever momentum gold prices had left following the failure (again) to bust $1310, setting off the strong, sustained selling that we saw in the market through Thursday.

Full-er Employment

In public comments delivered Tuesday in Minneapolis, FOMC Vice Chairman Richard Clarida suggested that he sees the possibility that the unemployment rate could move further below the current 3.8%, which is already theorized to be slightly below the threshold for “full employment.” Off hand, I chuckled at the suggestion a bit.

And then I saw Thursday’s Initial Jobless Claims data. After last week’s crush of a number, another historical marker goes down this week as we saw a low in new claims (196k) going all the way back to 1969. As I said, gold price was already tumbling downhill after another failed breakout and this number only served to turn the tumble into a temporary free fall.

Next Week

As has repeatedly been the case over the last 30 days, gold spot has found support once again at $1290/oz for the time being. Next week, as we watch to see if gold rises once again or else tries for an ugly breakout to the downside, we’ll have US Retail data to examine as well as the renewal of the reporting cycle for housing data.

I’ll see you all back here on Monday for a look at the week ahead for gold markets. Until then, enjoy your weekend, traders.