GoldPrice.

Happy Friday, traders. Welcome to our weekly recap of the data and news that drove precious metals prices over the last five days. Gold prices have rebounded from a dire start to the week and look poised to ultimately squeeze out a gain for the last five days of trading.

So, what kind of week has it been?

Despite an Early Monday Sell-Off, Gold Prices Find Stability to Start the Week

As we talked about briefly at the start of Monday’s preview piece, the roughest part of the week for gold prices was the early hours of Monday morning. It was then that a run of selling, spurred by some lingering risk appetite from last week, began hitting stops in a shallow futures market; gold spot prices took a hand full of big steps lower as a result before demonstrating support at $1450/oz.

It’s true that gold’s overall technical charting has turned away from the big bull run of the summer and early autumn, and that shifts the technical analysis in a way that will—until prices break-out higher again—consistently invited more sellers into the market and apply regular downward pressure on gold prices. Looking back on Monday’s downer off a session for gold now, with the benefit of knowing how markets would play out over the following four days, I do suspect that a lot of the weakness we saw from the yellow metal to begin the week was a result of the shallow Veteran’s Day market.

And once precious metals rebounded from their deep dip around the start of US equity trading, they never for the rest of the day—really, for the rest of the week—looked like challenging those lows again. It was clear from the start of the week that a very concerning escalation in the Hong Kong protests—now proving to have a very tangible impact on the business of a major financial hub—would create a steady hum of uncertainty supporting the risk-off trades indefinitely. In the same vein, the markets over the course of Monday’s business seemed to sober up again and assess the rising (and ever present) concerns that the US and China are having an increasingly difficult time forging even this “phase one” agreement. This creeping worry overshadowed anything else for the day, rattling US stocks and pushing the Dollar lower to help gold hang just south of $1455 for much of Monday and Tuesday.

The gold chart through lunchtime on Tuesday was certainly a little bit choppier than the day before, with a handful of attempts to drive the yellow metal back to the level of support at $1450; a bit of an odd trade given the lack of strong support for any sort of trade-centered optimism, as well as the comments from FOMC Vice Chair Richard Clarida. In the only truly notable burst of FedSpeak from somewhere other than Chairman Powell’s congressional testimony, Vice Chair Clarida focused his remarks on the new challenge that persistently low inflation around the globe will present to central banks. I would’ve expected this kind of rhetoric to be a bigger boost for assets like gold and silver as it suggests there are those at the Fed, like Clarida, who see the US economy as being still a long way from hiking short-term rates again.

The President’s Tariff Rhetoric Continues to Stress Markets, Move Gold Prices Higher

Even if gold prices (and other safe haven assets) didn’t get their boost from Federal Reserve commentary, the yellow metal’s run higher would come eventually as a result of Donald Trump’s address to the Economic Club of New York after lunch. Observers and investors were hoping for some kind of update, hopefully a positive one, on the state of the US and China’s negotiations on phase one of a trade-truce agreement. What they got was the usual blustery rhetoric that one should expect from the US President by now. Trump was somewhat vague about his administration’s level of unwillingness to roll back the existing tariffs as a condition of this initial agreement—something that is generally accepted as a demand of China’s—while seeming adamant that he would heavily increase those tariffs should the two sides fail to come to an agreement that meets all of the US President’s stipulations. If I’m using some vague descriptors here, it’s because Donald Trump’s remarks were confounding to the point that even seasoned bank analysts were having to filter recommendations through their interpretation of the language more than what was actually said—a stance typically reserved for discussing the rhetoric of inscrutable foreign leaders.

Unsurprisingly, Trump also made time to throw some rocks at the Federal Reserve; this time focused on his view that the FOMC should be cutting short-term interest rates into negative territory (despite his claims of a “historic boom” in the American economy at present.) I’m not going to spend much time talking about this line of discussion, as it seems clear that the markets understand the President’s vitriol will not materially affect the Fed’s decision making. We can see evidence of this in the growing belief that rates could remain on hold even through the 2020 election.

As the net effect of the President’s speech was to strip away most of the week’s optimism for a trade agreement, gold prices took their next leg higher and perched just below $1460/oz—another level from which they would not look back. It was a positive signal for the rest of the week, and possibly what’s left of the month, that metals priced managed to build so constructively off of Monday’s breakdown without relying on any unsustainable bursts higher.

Gold Prices Moved Higher Mid-Week on Powell Testimony, Roadblocks to Trade

Throughout Wednesday and Thursday’s trading, we saw the overall mood of risk-aversion really take hold across the market. No surprise really, as Wednesday saw the start of Federal Reserve Chairman Jerome Powell’s congressional testimony, as well as the public phase of impeachment proceedings aimed at Donald Trump. Asian and European markets, having gotten their chance to digest Trump’s Tuesday remarks, handed higher prices off to gold traders to begin Wednesday morning in the US, with the yellow metal trading close to $1465/oz.

Despite headline writers’ trend toward hyperbolizing any step down in inflation, Wednesday morning’s CPI data was effectively a non-factor for the Dollar or gold prices; and with impeachment hearings drawing a lot of media attention but creating very little that would pass through to markets, that left Chairman Powell’s appearance before congress to be the dominant factor in midweek trading.

While pushing back against Donald Trump’s “suggestions” of employing negative interest rates on Wednesday, Powell did unsettle markets a bit—dinging Dollar longs and increasing gold’s support above $1460—in voicing his concerns that the current fiscal trajectory of the US (the growth of debt vs. GDP, specifically) is “unsustainable.” Perhaps aware that he may have unnecessarily rattled investors with those comments, in his Thursday testimony before the House of Representatives, the Chairman made sure to point out that he doesn’t see a “day of reckoning” arriving anytime soon to end the US economic expansion.

By the time Powell could make that qualification on Thursday however, risk aversion was already running through global financial markets again thanks to Wednesday afternoon reports on very specific stumbling blocks that remain between the US and Chinese delegations in their trade talks. While gold’s reaction was somewhat muted, the risk-off swing led to a downturn in equity markets that negated most of stocks’ morning gains.

Risk aversion carried over into Thursday’s trading—exacerbated by another run of worsening Chinese economic data—and culminated in what appeared to be a short-squeeze in the gold futures market, pulling spot prices to and through $1470/oz while silver reclaimed a $17-handle. Included in that run higher was the weekly release of Jobless Claims data that leapt to the highest level in five months. While it’s a one-off number that doesn’t materially change the assessment or long-term trend of the labor market (just as last week’s one-month low did not,) we do have to acknowledge that we’re seeing some level of reaction in gold markets to these prints. Out of good practice, we’ll keep an eye on their release in coming weeks.

White House Mouthpieces Calm Risk Aversion, Dampen Gold Prices

Friday’s trading has been, on balance, pretty tepid. The volume has been turned down a couple notches on Wednesday and Thursday’s risk aversion, in a shift of mood that seems wholly inspired by remarks from the President’s economic advisor on Thursday evening. US-China negotiations, Larry Kudlow says, are in fact going very well and very near a successful “phase one” agreement. The market reaction to this “news” has seen gold prices pull back towards $1465 and silver just below $17/oz once again, while US Treasury yields have lifted back above 1.8%.

I cannot stress enough the fact that, as of Friday afternoon at least, the only evidence we have of progress being made in trade talks this week is the same rhetoric from Donald Trump’s core staff that has proven to be unsupported so many times over the last few months. With that in mind, and given other narratives of instability like Hong Kong’s economy likely heading toward a contraction this year, I’m inclined to say (in a way that is definitely not investment advice) that gold and other safe haven assets have more room to the upside going into next week than to the downside.

Next Up

It looks like next week’s gold markets will again be driven by factors like geopolitical concern, trade talks, and FOMC commentary. Our data calendar looks fairly light, with the focal point being Wednesday’s release of the latest FOMC minutes.

For now, traders, as always: get out there and enjoy your weekend! I’ll see you all back here on Monday for a breakdown of what to expect in the next week ahead.