GoldPrice.

Happy Friday traders, quite a start to the day (and end to the week) that we’re seeing.

At the time of writing, just after the release of more lackluster PMI data (this time for the service sector of the US economy,) gold prices have ridden a healthy bid following the April Jobs Report and are now looking to retake the $1280/oz level to close the week.

No mistakes in our headline, or recap of this morning’s NFP and Unemployment data: gold really is noticeably higher on the day following another upside burst in the monthly number of jobs added and the headline inflation number somehow (impossibly, astoundingly) moving…lower.

But the US Dollar has lost a great deal of momentum and in turn gold prices have risen. I think there are two possible catalysts for the market action we’re seeing, and it’s likely a combination. On one hand I think that traders and investors, knowing that there are other indicators like PMI that are less positive reads on the US economy and that inflation overall remains muted, have acclimated to big bang NFP and unemployment data because it’s been so common of late; in that environment of diminished excitement, I think a lot of observers and Dollar traders are concerned about that one outlier today—a weaker than expected rise in Average Hourly Earnings.  There’s still a lot of data to digest here, as there always is with the monthly Jobs Report, but it does seem like we’re entering a phase where negative economic indicators will ring more loudly in commodities markets than the positive stuff. A look at just about any major USD-cross in the forex markets today should bear that out.

Before this morning’s trading though, we had a whole four other days of markets and macro news.

So, what kind of week has it been?

Gold Prices Were Shaky to Start the Week

Monday’s price action in the gold market swung a range of $5 or so as traders and investors positioned themselves for a choppy week ahead. After some strength and stability in the Sunday night markets, gold spot sold off in the beginning of US-market, trading below support at the $1279/1280 per ounce range for most of the morning. Once spot prices regained the $1280/oz level mid-afternoon, gold began a steady trek back up to $1285.

There wasn’t much in the way of economic data on Monday that was meaningful for metals traders, as is often the case. We did see an update on Personal Spending number (for March) which, while slightly increased vs. February data, was still pretty meek. Markets had little-to-no reaction to the report, but it would foreshadow the concern noted in Wednesday’s FOMC statement about household spending in the US economy.

The Market Remained Calm on Tuesday Ahead of the FOMC

Gold markets were calmer on Tuesday during the US session, trading a fairly tight range between $1280-85/oz after seeing some selling pressure to start the morning. February’s Case-Shiller Index of home prices reported still-slowing growth, while the strongest bid in the gold market for the day came from a big miss to the downside on the Chicago PMI survey for March. As we mentioned in Monday’s preview, Chicago PMI had remained relatively buoyant in recent months as other PMI data fell closer to the 50.0 break line and so it had the potential for this kind of “catch-down.” That the drop has shown up in the data now suggests slowing growth, particularly in the manufacturing space, may become persistent; this fear would be reiterated later in Wednesday’s ISM Manufacturing PMI.

Powell & Co. Lit a Fire Under Gold on Wednesday Afternoon, Immediately Put It Out

May’s price action got off to an energetic start on Wednesday and while quite a bit of momentum was knocked out of gold, I’d suggest that the fact that it could have been a day of major losses for gold—and it wasn’t—may ultimately be a constructive signal for the yellow metal with a much quieter calendar next week.

Like I said at the open, wild upside surprises in employment data is back this month as we see the accumulation of historical lows recently reported in weekly Initial Jobless Claims. The party got started on Wednesday as ADP reported 275k private-sector jobs added—nearly 100k more than expected— while the previous month’s more “normal” number was also revised upward.

Several proxies and a technical factor suggest that Change in NFP could surprise upward.
*Bloomberg consensus:
+190Ke v +196K prior

— Christophe Barraud (@C_Barraud) May 3, 2019

As anyone would expect, that bombastic number brought in some gold weakness. Prices would see a strong rebound later in the morning however, as ISM’s assessment of the US manufacturing sector in April was released and painted and confirmed concerns about flagging growth.

Of course, the headliner of Wednesday was always going to be the April/May FOMC statement and following press conference. Ryan Page handled the recap for goldprice.org this month, and my take more or less rhymes with his: gold got some strong tailwinds out of the statement which, in acknowledging concerns about weak and falling inflations (as well as household spending) encourage the market to further price in the odds of a 2019 rate cut—remember, historically, cutting interest rates drives increased investment in gold; but price action quickly accelerated in the opposite direction during Chairman Powell’s Q&A as he took the opportunity to clarify that the FOMC sees recent inflation issues at “transitory” and will feel comfortable maintaining the current pause. As a result, those market expectations for a possible cut (and a corresponding boost to gold prices) were flushed right back out. To solidify the point, the market chart for Eurodollar futures (one of the instruments used to gauge the market’s “pricing-in” of policy changes) looks almost exactly like a gold chart during the Fed announcement/presser.

Gold Took a Breather on Thursday, Sets Table for April Jobs Report

Gold prices would manage to stay within touching distance of $1275 in the post-FOMC afterglow, limp into the Asian overnight and European early morning sessions and continue to find support around $1270/oz for most of Thursday. We did see support break and gold fall as far as $1266 in spot markets turning the US morning, not so much due to a flat (literally flat, which I can’t remember having seen before) Initial Jobless Claims number but likely, in my estimation, to a big uptick in Nonfarm Productivity numbers.

U.S. #labor productivity—measured as nonfarm workers’ output per hour—rose at an annual rate of 3.6% in Q1, the fastest pace since 2014:Q3 https://t.co/37PYQzCw5a pic.twitter.com/qX7HX4A5NZ

— St. Louis Fed (@stlouisfed) May 2, 2019

Even so, gold would retake the $1270/oz level by lunchtime and hold through the day and set the table for this morning’s April Jobs report and the resulting price action.

Next Up

Any week would feel downright calm on the macroeconomic calendar compared to the one just behind us, and next week is even lighter than usual on Fed Speak given that we’ve just had an FOMC meeting. Still, no slipping off for the summer just yet, as Friday will bring us the newest assessment of US inflation—a metric whose importance for predicting the path forward (for gold, US Dollar, rates, etc.) was certainly magnified by this week’s events.

But first, we’ve got a weekend to enjoy. After that, I’ll see you back here on Monday for a look at the week ahead in gold markets.