GoldPrice.

Happy Friday, traders. Welcome back to our weekly market wrap, focusing on the news flow, narratives, and economic data that had the biggest impact (and may continue) on gold prices, as well as the charts for the US Dollar and other correlated assets.

At the close of a week that has been dominated by a superficially ceaseless rally in US stocks, gold prices are dramatically lower as are all of the major safe havens including the US Dollar. While the yellow metal had managed to hold elevated levels alongside an equity market rally that seemed disconnected from the worry in the world, the reporting of key labor market data that corroborates a rose-tinted outlook has driven risk-appetite to new highs and gold (and silver) prices to the lows.

So, what kind of week has it been?

Monday: A Steady Rise for Gold Prices Belied Rough Trading Ahead as US Stocks’ Surprising Rally Continued

As far as news and data that had a tangible impact on our key markets, Monday was a relatively quiet start to the week. Just after our weekly preview went out, the ISM reported their Manufacturing sector activity index for May. The headline PMI number was in-line with expectations and was the first in a stream of economic activity indicators this week that suggest we may have seen the worst of things in April as important parts of the economy in the US (and Europe) begin spinning back up. Appropriate to that risk-on tone, gold prices dipped sharply in the minutes following ISM’s report, but the yellow metal would recover quickly and continue moving higher before stabilizing in the afternoon. Spot prices would close higher for the day, at $1738/oz, even as US stocks performed well. Silver spot prices, which had pushed higher along with gold at the open of trading Sunday night, continued to find strong support as it crossed above $18/oz.

Despite what has continued to feel like a steady drone of pessimistic signals—the growing civil unrest threatening to affect re-opening plans, the instability of US outlook at a pivotal moment, and worsening tension with China, to name three—the US stock market’s confounding rally higher only persisted on Monday, lead primarily by tech shares. In other markets key to tracking gold prices, the US Dollar was off the pace having fallen to 2-month lows overnight, and crude oil’s recent rally began to stutter ahead of some important decision points for OPEC+ coming up this week.

Tuesday: A Steepening Yield-Curve Added to Markets’ Exuberant Appetite for Risk, Gold and Silver Prices Weakened as Investors Chose to Focus on the ‘Maybe’ Over the Now

Tuesday’s square on the economic calendar for this week was bare, and ultimately precious metals prices would have another afternoon of tightly bound trading but only after a steep drop lower in the first few hours of US trading. Equity markets, not just in the US but globally, had continued to rise despite warning signals still flashing; but it was a technical line crossed in US Treasuries that goosed risk appetite higher and drove strong selling in safe havens like gold and the Dollar.

The U.S. Treasury yield curve is approaching its steepest level in three years https://t.co/MtRVApIiy7 pic.twitter.com/0iMIzFdGBI

— Bloomberg Markets (@markets) June 2, 2020

The steeping yield curve offered a backstop to the enthusiasm for the future that we’re seeing priced into US stock markets, and this only accelerated investors’ and managers’ reach for risk. Investors continued to sell bonds but also liquidated gold positions, sending spot prices as low as $1725 where they found support at midday. Silver also fell; the grey metal slipped back below $18 in Tuesday’s trading and has so far looked unlikely to regain that level in the near-term.

Gold prices traded just above $1725/oz through the afternoon, while US equities persisted in looking past the turmoil and uncertainty of the present and focused instead on a hope that things will improve in the medium term. Stocks closed a third-straight day higher.

Wednesday: Gold Prices, Alongside the Dollar and Other Safe Havens, Plummeted as Economic Data Finally Arrived to Support Equities’ Disconnected Rally

Gold prices weakened slightly through another overnight session that saw Asian and European stock markets continue the rose-tinted rally but trading mostly remained calm. The exception was oil markets where Brent prices sold-off from three-month highs as doubts that OPEC+ plus could come together again to extend existing production cuts began to emerge. While softer oil prices applied some downward pressure to gold and the rest of the commodities complex, it was a strong positive shock and the pursuant surge of risk appetite that crushed metals prices lower, in two strokes.

The first was ADP’s report on growth/contraction in private payrolls: while economists were looking for a roughly 55% improvement from the brutal 20 million jobs lost in April, the May report reflected a decline of more than 80%.

ADP: US economy shed 2.76 million private payrolls in May (-9 million expected) https://t.co/CFgepZEoSu

— Yahoo Finance (@YahooFinance) June 3, 2020

The announcement finally lent some more tangible support to the global equity rallies that have seemed unmoored from economic reality. As a result, the primary safe havens came under heavy selling pressure: The Dollar continued its three-day slide, Treasury yields ran higher, and gold spot prices slid quickly towards support at $1700 ahead of the US market open.

Although prices saw a mild rebound around the start of Wednesday’s cash trading, the second blow came shortly after on the heels of the PMI data for all-important the US services sector. The ISM’s data set for non-manufacturing activity at 45.4 was nearly a point-and-a-half better than expected, and that much closer to the breakeven of 50.0.

U.S. service providers started to emerge in May from a pandemic-induced tailspin https://t.co/KPIHwEXa0N

— Bloomberg Economics (@economics) June 3, 2020

Market optimism for something like a V-shaped recovery began to push even harder thanks to the service sector read, and precious metals were hit hard as investors rotated out of safety in a reach for risk. Gold spot prices fell below $1700/oz—a level of support that the metal would fail to recover for the rest of the session—while silver priced fell to $17.50. Safe havens across the board saw strong selling, as the Greenback dropped to an 11-week low and US Treasury bond saw enough selling to push the 10-year yield above 0.75%.

With little in the way of market-relevant news flow, the charts moderated following the morning sell-off and held steady through the afternoon, with gold spot running just below $1700/oz. Exuberance in the stock market continued across the afternoon, with the S&P 500 running to three-month highs.

Thursday: Disappointing Jobless Claims Data Lifted Gold and Muted the Equity Rally, but Other Key Charts Showed a Continued Pivot Away from Safety

Beginning with Asian stock markets, the week’s rally in global equities took a balancing break on Thursday with Japan and other developed Asian markets seeing only a mild uptick in value. With a slight relief in downward pressure, gold spot prices were able to gravitate back above $1700/oz ahead the European open and, on expectations (later realized) for increased momentary stimulus from the ECB’s upcoming announcements, the yellow metal found consistent support.

US stocks would follow the global trend in pulling back somewhat on Thursday, and at least some of the slowdown which broke a four-day run in the green came from the markets’ spooked reaction to Thursday morning’s Initial Jobless Claims. The unexpected rise in both initial and continuing jobless claims was a shock of cold water following Wednesday’s private payroll data, and it pushed a number of traders and investors back into a risk-off stance as gold prices rebounded before settling just above $1715/oz for much of the day’s trading and the S&P 500 would go on to its sharpest intraday loss in two weeks.

Although equities were taking a breather on Thursday, movement in the Treasuries market made it clear that the optimistic rally in risk appetite was not losing much steam at all.

U.S. service providers started to emerge in May from a pandemic-induced tailspin https://t.co/KPIHwEXa0N

— Bloomberg Economics (@economics) June 3, 2020

With 10-year yields running past 0.8% for the first time since late March—as well as the Dollar continuing to slide—even as gold prices rose on the day, it was clear that while the morning’s labor market data was a concern it would not be enough to dampen the growing expectation for a strong and fast economic recovery.

Friday: Stunning Improvements in Labor Market Data Have Sent Equities to the Moon and Gold Prices Below $1690.

The final trading day of the week has been dominated by the release of the Labor Department’s May Jobs Report, but not for the reasons that we—and most others—expected. Non-Farm Payrolls for the month just ended reported a stunning count of 2.5 million jobs added in the US economy, against expectations for a totally of 8 million jobs lost. Further, the headline unemployment rate that was expected to rise to nearly 20% instead declined to 13.3%. These numbers are shocking, nearly to the point of being unbelievable. The risk-appetite that Thursday’s bond market showed us was persisting below the surface rushed back to the fore, and the release of today’s labor market numbers saw gold spot prices plummet to $1685/oz while US 10-year yields rocketed towards 1.0%. With silver reeling as well, gold prices continued to fall to a test of the May lows and, unsurprisingly, the US stock markets have ripped higher from the start of today’s cash trading, and look certain to continue an unbelievable and unprecedented rally in S&P 500.

U.S. service providers started to emerge in May from a pandemic-induced tailspin https://t.co/KPIHwEXa0N

— Bloomberg Economics (@economics) June 3, 2020

At the time of writing, we’re seeing the euphoric burst in stocks moderate out a bit, and it’s corresponded with gold spot rising from the floor with an eye towards closing the week around $1680/oz—it seems safe to say that I don’t expect much profit-taking on this Friday. This wild rally in risk markets looks set to be the dominant market narrative for us heading into the start of next week (at least until the next China or coronavirus headline supersedes it.) In my eyes, we’re now in a risky, self-perpetuating cycle for stock prices that, with numerous threats to stability (much less prosperity) and tail risks still surrounding both the US and global economies, continues to push asset prices higher. This week’s labor market data finally added a touch of the concrete to this rally, but I have to say it still feels over-stretched to me. If the rubber band breaks, non-Dollar safe havens like gold look positioned for some serious upside.

Next Up

Next week we’ll continue to monitor and talk about the outlook for the equity bull run and its impact on gold markets, and we’ll also be tracking the health risks around the US’ economic re-opening (which may be fading) and the risks around friction between the US and Chinese administrations (which aren’t going anywhere.) Our economic calendar also has some focal points, with Wednesday’s FOMC meeting topping the list.

For now, I hope you’ll enjoy your weekends, traders, and do you best to stay healthy and safe. I’ll see everyone back here on Monday for our weekly market preview.