SilverPrice.

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 aggressively lower to end this trading week, as the yellow metal—like many other key investment vehicles, and other key components of the commodities complex—has taken deep price cuts with investors rushing into USD cash positions above virtually any other option as the Fed looks likely to continue its rate-hiking fight against inflation.

So, what kind of week has it been?

On one hand, the price path for gold this week is quick and simple to outline; on the other, less attractive hand, that path has been a consistent and, at times speedy, roll downhill. As is often the case in trading gold, the yellow metal’s slide this week—this month, really—has been little motivated by data and headlines that direct impact gold as an asset, and primarily driven by gold’s inverse relationships to the US Dollar and to Treasury yields. Both major assets have been at the front of mind for most investors in the markets going back to last week, and both have been largely responsible for the downward pressure that has brought gold prices to a 13-week low during Friday’s trading.

In the first half of the week, it seemed that the most pressing, talked about headwind for gold prices would be elevated Treasury yields, primarily the shift (driven by projections of the Fed’s plans for the rest of 2022) of the US 10-year yield above 3%. With the benchmark rate above 3% for the first time in years, it wasn’t surprising to see gold prices struggling to find committed buyers near $1900/oz again, as gold traditionally draws less attention from investors in higher rate environments.

Elevated rates were the key point in market mood that saw gold spot prices drift below $1850/oz, with little in the way of concrete news to be traded on and added pressure from the US Dollar continuing to strengthen, even as investors and managers bid Treasury yields back down a bit on Tuesday. Wednesday morning, however, put USD firmly in the driver’s seat as the dominant force in financial markets. Following the release of April’s consumer inflation data, the US currency became the preferred investment and safe haven of every actor in the markets, it seemed; the flurry of bids and grabs for cash have driven the US Dollar Index to its highest levels in 20 years, bringing the Greenback back to near parity with the Euro.

The core motivation for this recent run in the Dollar is the Fed’s tightening of monetary policy—both the moves that the central bank has already announced this year (nearly one full percentage point of rate hikes and a balance sheet run-off to start next month) and what they are projected to carry on doing in an effort to battle back on the highest inflation in decades (likely hiking rates at every remaining meeting in 2022, including at least one or two more hikes of +0.50%.) This policy is a strongly bullish signal for the Dollar, particularly as compared to its peers and primary trading partners. We can never reduce the complexity of the foreign exchange market down to a concise explanation and cover all the bases, but the main mechanism to understand is this: higher rates in the US (that is, for the US currency) makes USD a more attractive store of value because it offers a greater yield for holding the currency than its counterparts can offer.

The CPI report for April showed signs that, yes, consumer inflation in the US really may have “peaked” earlier this year, but, no, it’s not going to tail-off quickly or without a fight. Both “core” and headline inflation fell year-over-year in a promising sign, but not by as much as the consensus projected. Additionally, core inflation actually rose month-over-month, driven by a sharp acceleration in price inflation for services rather than goods (like air travel, which made up the wide majority of April’s increase.) Unsurprisingly, investors and managers read this as a risk-off signal overall; one that specifically implied greater value for the Dollar, assuming that this data means the (current) consensus projection for the Fed to continue hiking rates throughout 2022, possibly to rise above the “neutral rate.” Wednesday and Thursday’s trading was a show of dominance for the Dollar, with virtually all other major asset classes—US stocks, gold and other key commodities, other G7 currencies—falling sharply against the Dollar over two days. US Treasuries prices were the only real exception, and we see the 10-year yield back below 3% on Friday.

Because a higher-than-expected inflation report was Wednesday’s catalyst for a ripping Dollar, gold prices did manage to hold their line around $1850 until Thursday morning. Even if the market mood clearly favors USD, gold always has some weight to swing around as a traditional inflation hedge. But as the Dollar truly accelerated again on Thursday, buyers’ support for the yellow metal finally broke badly, cutting gold prices below $1820.

As we look towards next week’s opportunities, there’s a slightly more positive mood in markets overall, but not one that has been friendly to gold. The US Dollar is slightly weaker today, likely in a corrective cool-down; but beneficiary of this on Friday has been the US stock markets as investor risk appetite seems to be returning, however briefly. Gold has continued to slide in the last session of the week, and at this point seems to be looking for support just above $1800 going into the weekend. Next week could be another precarious run for gold prices: a relatively quiet macro calendar and little in the way of major headlines expected around fiscal or monetary policy could see the yellow metal again subjugated to movement(s) in the US Dollar above all else.

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.