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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 look set to close this week’s trading roughly on par with where the week began, following a mostly calm week that saw the yellow metal fluctuating within a narrow band of $1840 – $1865/oz.

So, what kind of week has it been?

The FOMC Appears to Remain in Alignment with the Markets, and Gold Maintains Support

The reveal that investors and analysts were most interested in this week was the release of discussion notes and minutes from the FOMC’s May meeting, which were released on Wednesday afternoon. The gold market is of course always interested in Fed headlines, as the yellow metal remains a traditional hedge against the high levels of inflation that the US central bank is trying to quell; gold is also an asset class that historically reacts negatively to higher interest rates, a key part of the Fed’s playbook to slow inflation.

Outside of reactions to what the Federal Reserve does or doesn’t announce, gold, as a risk-off asset, often moves counter to the rise and fall of investors’ optimism as expressed in the US stock market. This week’s FOMC minutes, however, are an example of how the Fed can drive both asset classes higher. The minutes main theme: continuing to hike in +0.50% increments looks to the committee to be “appropriate at the next couple of meetings,” broadly in line with what the market has been expecting to hear for several weeks. For the gold market, this was received with relief that there are unlikely to be any surprises coming from the Fed; rates will continue to move higher, at least through the end of the summer (probably through the end of the year) in an orderly manner and, while this is a somewhat negative signal for gold, the policy path seems to align with the market’s projections and so it expected to be “baked into” the current spot and futures prices for gold. “No news is good news” meant that gold prices made a brief leg higher on Wednesday following the FOMC minutes. While it hasn’t led to any strong rallies for the yellow metal, gold has been able to take this relatively calm week to consolidate support positions around $1850/oz on the way into a busier June.

US Stocks Also Find Relief in the FOMC

At the same time, the US stock market had a happy reaction to the FOMC minute with all three major indexes rising midweek en route to putting together a six-day streak (as of Friday, noon) and looking to break a seven-week duck for the S&P 500 and the NASDAQ. Just as in the gold market, investors seemed pleased to hear (from the Fed) that there are no current expectations for financial conditions to tighten more than expected.

Rising stock prices, rising bond prices (and the resulting fall in treasury yields,) and no new hawkish signals from the Fed have combined this week to further motivate the slide in the US Dollar Index which began from last week’s top ticks for the Greenback. Should this retracement continue, it will also provide some added headroom for gold prices—if not an outright push higher—to have the precious metal’s main rival in the safe-haven trade weakened. After all, it was last month’s surge in USD that played such a key role in spot prices for gold collapsing through $1900/oz. (For the sake of accuracy, we should also mention that this is almost certainly a feedback loop between the Dollar and risk assets: Climbing stock prices alone are not weighing down the Dollar; the US currency is weakened by multiple inputs, which in turn is helping to boost Dollar-denominated equities, and so on. Along the way, it’s a generally positive development for gold prices.)

Markets Processed a Big Recession Signal from Thursday’s GDP Data

Where the fortunes (so to speak) of gold and the US stock market could diverge in the medium term is if the Fed runs into (or, depending on your viewing positions, causes) more serious problems for the US economy as it tries to curb inflation. Even presuming success in knocking price pressures back to “stability” around the 2% target, a recession created by the Fed would still be a recession, and signals that we’re heading down that path will lend a tailwind to gold and other risk-off plays. This possibility was brought back to the fore earlier this week when the “second estimate” of GDP growth in the economy for Q1 of 2022 reported a deeper contraction (-1.5%, vs -1.3% QoQ) than expected. The textbook definition of a recession is two consecutive quarters of contracting GDP, so getting halfway there certainly made some investors nervous (and gave pundits a lot of fear-mongering to do.)

Gold prices rode a brief risk-off wave higher on the news, but it began to quickly feel like this wasn’t much as far as doom prophecies go. For one thing, the US labor market continues to strengthen month-to-month, and more granular indicators like healthy performances from big retail business in the US and climbing activity/spending in air travel paint the picture of willing and active US consumers who might be getting bigger paychecks as the labor market tightens. The updated GDP numbers maybe have briefly set investor risk appetite back on its heels Thursday morning, but when taking the full picture into account, equity investors chose to add to their bets on the table as the week’s shift towards investor optimism continued.

— Brian Chappatta (@BChappatta) May 26, 2022

And while easing recession fears is usually antithetical to higher gold prices, the downward pressure on the US Dollar allowed support for gold to hold steady around the $1850 level, with longs hoping that the yellow metal might fight the motivation to move a bit more up-and-to-the-right this summer.

Next Up

Next week is truncated by the Memorial Day holiday on Monday, but will still be an important week for gold prices (in the near- and longer-term) as the May Jobs Report arrives on Friday. In Tuesday’s preview for the week, we’ll talk about how different possible outcomes might see prices reacting positively or negatively.

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.