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 may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.

Gold prices are closing the week out at levels well below Sunday evening’s starting bids, as it seems that the summer slowdown in financial markets may be more of a headwind than a tailwind for the yellow metal in an environment made up of high growth expectations and precious little risk aversion.

As the trading activity around this week’s inflation data shows, however, should a new catalyst for gold’s second-quarter rally come in to play, the yellow metal may well find interest buyers back near the highs.

So, what kind of week has it been?

The single showpiece of a very quiet market week—the first of several that will come as we move through the summer doldrums—was our look at consumer price inflation for the month of May. As expected, the overall prices across the US economy remained super elevated last month, an effect of the pace and progress of the US (and the globe) reopening after the pandemic-driven lockdowns of 2020.

• Inflation accelerated slightly faster than projected, in fact. The “core” measure of CPI came in at +3.8% YoY in May (vs. expectations of +3.4%); The more volatile headline CPI number, which includes the cost of food and fuel, rose 5% YoY.

Even if the US economy had not been trudging along for more than a decade with inflation rarely holding above 2%, the headline numbers that we saw in April and now May would be eye-watering. Especially in the context of a nascent economic recovery, 5% inflation could be expected to severely hamper (or reverse) most growth—if sustained. It’s for this reason that we’re moving through the most closely watched run of CPI reports in years, one that will likely last through the summer.

• The Fed, and others, remain confident that primary drivers of this spike in inflation will ultimately be temporary; Inflation hawks on the other side argue that Jerome Powell & Co. may well be wrong and that, if the Fed continues to hold monetary policy at an ultra-easy level, the US economy could be toying with the start of a destructive cycle of hyper-inflation.
• A more granular look at Thursday’s data sets makes an argument for the Fed’s position that current inflation is “transitory.” Rather than seeing super-hot inflation across the board, only a few categories are responsible for a majority of the jump in prices compared to May of 2020.
  
  • Pointing to an acute (rather than systemic) issue of recovering supply struggling to meet resurgent demand, nearly half of May’s price inflation came from the auto, air-travel, and car rental categories.
• It should be said, of course, that consumer inflation is tough to simplify even in the calmest phases of the economic cycle and, given that the recession/recovery we are living through is a globally unprecedented experience, analysts and commentators can (and will) mold a single month’s CPI data to support any argument they want to put forth.

Markets on Thursday did not take much time to decide how to interpret the morning’s CPI results. After some initial instability just after the release and as US equity markets opened for cash trading about an hour later, the rest of the session was a clear celebration of easy money (cheap borrowing, especially) sticking around for a while with no real cause to fret about inflation.

• All three of the US’ key stock indexes made gains on the good mood of the day, with the S&P 500 making a new all-time high.
• In the US Treasury markets, where we would expect to see the most tightness if investors were more concerned about persistent inflation pushing the Fed, we instead saw yields plummeting on Thursday. The US 10-year’s benchmark yield fell as low 1.45%, its weakest level in more than three months.

For those in the gold market all of this so far—the last few paragraphs about CPI and the general market’s perception of what’s to come this summer—has been a lead-up to say that Thursday’s trading, which saw gold prices rally towards resistance at the $1900/oz level again, offered a brief pause in a possible weakening trend for gold prices that had begun the day before and is reasserting itself at the end of the week.

• Gold spot prices had started slipping during the Wednesday trading session, and ahead of Thursday’s CPI release has fallen as far as $1975/oz—roughly aligned with the yellow metal’s pricing at the time of writing on Friday afternoon. It had the classic feel of a summer slide for gold, motivated by a calmness in financial markets and an overall lack of risk-aversion.
• When gold rallied hard in Thursday’s action alongside strengthening equities, prices moved so sharply that at least some of the tailwind must have come from the precious metal’s use as a hedge against future inflation concerns.
• As gold has sunk again on Friday, even as large parts of the stock market are continuing to rise and the rebound in Treasury yields has been moderate at best (although we do need to recognize what has been a surging session for the US Dollar,) there are signs that we are turning into a phase of the re-opening/reflation trade that I’ve talked about before. The excitement around equities having even more room to rise through the summer months may have tipped the market’s risk appetite to the point that there’s little interest in a traditional safe-haven—even a commodity like gold—when there’s money to be made.
  
  • We will keep an eye on it from the start of next week, but this could be the start of a trend wherein gold’s chart is less able to participate in the bigger rallies in US stocks.

Next week our attention will also be on Wednesday’s FOMC meeting wrap-up and press conference. Odds for any kind of change of tactic from the Fed are prohibitively low, but we can expect a concrete reference in the committee’s statement (and maybe some deeper color from Chairman Powell in his press conference) to the surge in consumer prices that we’ve discussed today. Of (at least) equal importance will be the release of updated economic projections from the FOMC, and an opportunity to see if any—or even a plurality—of Fed officials have made adjustments to their projected path of interest rates through 2023.

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.