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.

While gold has given up the entirety of gains made this week—thanks to swift downward pressure applied by the Fed signaling a plan to begin easing its support of the US economic recovery in November—the yellow metal is on-net only slightly lower than the market’s opening bids from Sunday evening.

So, what kind of week has it been?

It was still not for certain on Monday whether or not the FOMC would us this week’s meeting to update its “forward guidance” and prime the market for the start of a much-debated, long-awaited taper of its asset purchase program. It would’ve been nice—and likely profitable—to have known for sure that those new signals were coming, because the gold market’s reaction (after some initial volatility) has largely followed our projections.

There are arguments to be made, between the ever vague “dot plot” and Chairman Powell’s post-meeting comments, that this was actually a fairly dovish meeting for the current Fed; but bottom line is that the table has been set for tapering to begin as soon as November (the FOMC’s next meeting,) lending at least some credulity to projections made by some Fed officials that have an interest hike inside of the next 12 months.

• The gold market has endured bouts of strong downward pressure, as expected, following the Fed’s announcement. The yellow metal’s spot price initial found support around $1765 on Wednesday evening, but as US Treasury yields continued surging (to recent highs,) the slide accelerated once again on Thursday morning.
• Similar to last week, gold seems to enjoy healthy support at the $1750/oz level. While we’ve seen a couple runs below that mark post-FOMC, buyers seem inclined to step in fairly quickly.
• While we can say with a high level of certainty that this week’s FOMC is playing some part in the bond yield rally—the benchmark US 10-year’s yield is set to close the week well above 1.4%-- those waters are made a little murkier by the heightening brinksmanship being risked in Washington, as the clock ticks closer to the threat of the US government defaulting on some debt if Congress fails to either extend or eliminate the “debt ceiling.”
  
  • Through at least the start of next week’s trading, gold traders will have to account for the elevated bond yields driven by this narrative, which will provide some level of headwind against any gold price rally.

Without diving too deep into the more granular data sets and possible future paths of monetary policy mechanics, there’s not much else to cover about Wednesday’s Fed Day. The default projection, as Powell & Co. set out, will now be for the first cut of the taper to come in November.

• Chairman Powell also said in his press conference that the FOMC’s preference would be to conclude the full taper by the middle of next year; Not many analysts were expecting the Fed to so explicitly lay out their potential pace of tapering at this meeting.
• At the same time, because the language in the statement doesn’t guarantee a November start, there’s always the possibility that another big miss on labor market data (or a worse, more exogenous shock) in the coming weeks could forestall the move.

In terms of how the taper links to an eventual interest rate hike, which is where this really impacts the gold market: Powell didn’t seem as committed to distancing the Fed from the market inference that the end of the taper will lead directly into rate hikes as he was in Jackson Hole. However, there’s still a lot of variance in the infamous “dot plot’ projections of the Fed’s policy path—while the “median dots” suggest a possible rate hike by the end of 2022, it’s clear that there is a wide range opinions within the FOMC about the right timing.

• And remember above all, that these are projections for more than a year out—how may Fed officials, one year ago, where projecting consumer inflation to be running over 4%? Not (m)any.

With gold prices trying to hold that support at $1750 to close the session, next week’s calendar will bring us out first look at the important macroeconomic data between now and the tapering that the Fed penciled in for November this week; Friday’s PCE inflation report (compiled by the Fed) is expected to reflect the mild easing in price pressures that we saw in the CPI data. We’ll also continue to track to debt ceiling talks Washington which, as we pointed out earlier, may continue to impact gold prices via the US Treasury market.

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.