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 other key correlated assets—and may continue to into the future.
Gold prices are ending the week slightly behind their previous pace as the fervent start to trading in 2024 cools further. There is still consistent support for the precious metal, however, and this could be key as we move towards the year’s first Fed meeting.
So, what kind of week has it been?
The gold market is still trying to find its legs in this new year, or maybe—given the stability that the yellow metal is showing above the $2010/oz level, if not as high as $2020—it’s more a question of trying to find its direction in the first quarter. As investors continue wrangling and recalibrating their projections for how early in 2024 the Federal Reserve will begin lowering interest rates as a directive of monetary policy, we began the week with a slide in gold prices in tandem with improving US Dollar strength. The sense that the FOMC could announce a rate cut as soon as March appears to be fading as January goes on, and this trend has put a cap on any gold upside while making sell-offs feel more volatile; in Monday and Tuesday’s sessions, a softer gold market held spot prices between $2020–$2025/oz.
The downshift in the market’s fervor for earlier rate cuts has mostly been slowed in recent weeks by a string of robust macro reports out of the US economy, which suggest that the FOMC may not feel as rushed to ease financial conditions if the risk of a recession is lessened. On Wednesday this week, the gold market was caught off-guard by another one of these data points. Investors had perhaps been emboldened by the fact that gold held such strong support to start the week, the precious metals pricing had been pushed slightly higher since the later hours of the Tuesday session, and pre-New York markets saw spot trading back above $2030 on Wednesday morning before the release (just after cash trading opened for the US) of S&P Global’s version of the PMI assessment on the US manufacturing sector. Historically, traders and analysts focus more attention on the indexing done by the Institute for Supply Management (ISM), but there was no ignoring the strong outperformance, which lifted the top-line number above the 50.0 break-evens, signaling a return to expansion for America’s industrial sector for the first time in many months. Gold prices fell hard following the release, briefly dipping below $2015 before settling back at that level and trading flat for the remainder of the day. This would prove to be gold’s sharpest move of the week in either direction. Interestingly, the US Dollar didn’t enjoy a corresponding rally and, in fact, softened a bit on the day itself. This may have contributed to the support gold held—and continues to hold—following investors’ initial reactions.
This dynamic would repeat itself on Thursday with regard to the performance of economic data vs. projections but not in the actual trading. Analysts were expecting a step back in quarterly GDP growth for the US in the final quarter of 2023 after the economy had boomed (to an unexpected degree) to nearly +5% in Q3. True enough, the first-look number for Q4 has come in lower, at +3.3% QoQ, but most estimates had been as low as +2.0%. Despite a day of market-media coverage focused on the possibly hawkish signal such a strong GDP print could send to the Federal Reserve, gold prices largely held the line in Thursday’s trading after a slight step down initially. The yellow metal endured a bit of volatility mid-morning but eventually turned higher before closing the session back above $2020.
It was around this same price level that we began the final session of the week. The focus of the day, from a data perspective, had been on the Fed’s PCE Price Index read on inflation. But as this number came in mostly aligned with expectations (as it often does), there was a lot of focus on a stronger level of consumer spending (+0.7% vs. +0.4%, expected) being reported for December 2023. Following on from this last macro input of the week, flavored the same as the manufacturing survey and GDP reporting that we traded earlier in the week, gold has weakened again to close the week but still displays confident support from buyers around $2015/oz.
This all strikes a positive tone for gold’s prospects as we move farther into the first quarter of the year, but next week will bring a real test for the yellow metal, as it will for the market’s expectations of lower rates this year: in quick succession, we will trade through the first FOMC meeting of 2024, the ISM’s take on the health of the manufacturing sector, and the January Jobs Report.
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 next week for another market recap.