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 in the future.
The final five-day trading week of 2024 has seen gold prices take one of the year’s steepest single-day drops, but it also appears it may be putting in one of the strongest rebounds of the same period. So, this week’s narrative may ultimately point to the resilience of yellow metal.
Even with Wednesday’s FOMC meeting looming, we had an eye on Tuesday’s Retail Sales data for November, given the importance of “Black Friday” and other holiday spending to the health of the overall US consumer picture. Here there was some potential to see weakening gold prices in the spot market, as the moderate outperformance of the actual numbers against expectations (+0.7% MoM vs. +0.5%) could be seen as an indication that the Fed, not needing to be wary of tighter financial conditions severely slowing the economy, could be inclined to slow the pace of interest rate cuts back to “neutral.” The Fed would reveal on Wednesday that they, in fact, are shifting in that direction (more on that shortly,) but the suggestion alone wasn’t enough to put much downward pressure on gold, which held steady just above $2640/oz through the session and into the FOMC announcement.
On Wednesday afternoon, the Federal Reserve announced they were cutting the target range of overnight rates by -0.25%. This cut aligns with what had been the consensus projection by investors for a number of weeks now. As a result, the announcement itself had little impact on pricing for gold and other major asset classes beyond some knee-jerk trading driven by algos. What really grabbed the market’s attention and the steering wheel was the Fed’s disclosure, via the anonymous “dot plot” of projected rates to 2027, that they now anticipate only making two cuts of 25 basis points over the next 12 months. While not an entirely unexpected development, this signal clearly rocket markets. Crushing major US stocks lower, ripping yields higher, and the US dollar to one of its highest marks since 2022, and pulling the floor out from under gold saw its spot prices plummet below $2590/oz.
Asian markets’ opening activity saw a sharp bounce-back for gold, with the chart reaching back towards previous support, but this was short-lived, and with the yellow metal struggling to hold a bid at or above $2600 on Thursday, it seemed as if Wednesday’s bleed would leave prices in the same weakened position through the close of a tumultuous year. And, indeed, even a close after Christmas in the neighborhood of $2590/oz would cap a year of strong gains and record highs. But Friday, so far, has proved rejuvenating for gold yet again.
Month-over-month and on an annualized basis, November’s PCE Price Index (the “Fed-preferred” metric for US inflation) came in cooler than expected. This is always particularly surprising because the primary inputs for this data set, namely CPI and Producer Prices, were already delivered to the market two weeks ago. The reaction in markets— rebounding US stocks, a retracing Dollar, gold spot spiking as high as $2630/oz and appearing to settle not far below— align with some impression that inflation, perhaps, will continue to cool faster than the current FOMC projects and could test the central bank’s expectation for a shallower policy path in 2025. Investors may be quick to jump at any opportunity to infer similar shifts from hard data. On one hand, because the average investor now wants (or believes they want) lower rates faster; on the other, because there remains a meaningful degree of uncertainty about how much pressure the incoming US administration might heap upon the Fed to do the same.
Next week, things get strange and, more likely than not, slow around these parts. The final two weeks of 2024 will each be bisected by first the Christmas holiday and then New Year’s Day. Across the whole period, and probably through the first ten days of 2025, market participation will be much lighter, and as a result, market depth will be much shallower. So, while the data calendar next week is sparse at best, any exogenous shock to the system or revelatory headline that squeaks through the holiday malaise could bring a greater level of volatility to markets.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see you back here next week for another market recap.
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