Gold banked gains yesterday and today, but still closed lower on the week

Gold futures closed out the week with modest daily gains. As of 4:15 PM ET, the most active February futures contract is up $10 (0.49%) and fixed at $2031.60. Gold futures opened at $2027.40, traded to a high of $2044.90, and a low of $2022.20. The sharp declines on Tuesday and Wednesday resulted in a weekly decline. Trading activity over those two days resulted in a drop of $44.80. 

The $20 price decline on Tuesday was largely a result of an extreme rise in the dollar, which gapped higher on the open and finished with a net gain of 0.76%. On Wednesday, gold declined as negative market sentiment regarding the upcoming pivot by the Federal Reserve regarding the first rate cut as well as the depth of overall rate cuts this year. This resulted in a weekly decline of $20.

On Tuesday, market participants focused on a speech given by Fed Governor Christopher Waller who delivered a speech at the Brookings Institution. As one of the Federal Reserve’s 12 voting members, his words carry significant weight. In essence, he conveyed the same narrative that Chairman Powell expressed during his press conference in December regarding the upcoming pivot by the Federal Reserve from its former policy of rate hikes which began in March 2022 to a monetary policy including rate cuts beginning this year. 

His speech followed comments by multiple Federal Reserve officials including Cleveland Fed President Loretta Mester who told Bloomberg TV that the idea of a rate cut in March is probably too early. Investors who actively trade fed funds futures were overly optimistic conveying a high probability that the Federal Reserve would cut rates as early as March. Her comments along with other Federal Reserve officials made it clear that the narrative of the Federal Reserve that believes rate cuts would come much later most likely at the end of the second quarter of this year. 

A retail sales report on Wednesday revealed that retail sales had searched by 0.6% month over month in December. This strengthened the Federal Reserve’s resolve to not cut rates prematurely.

However, on Thursday, the bearish market sentiment for gold shifted to bullish as investors shifted their focus from the Fed’s monetary policy to escalating geopolitical tensions prompted by continued attacks by the Iranian-backed Houthis in Yemen. Since October 7 they had launched approximately 100 missile and drone attacks of merchant and military ships in the South Red Sea.

 A coalition led by the United States and Britain launched additional strikes to reduce the Houthis ability and what the Pentagon conveyed as a defensive act designed to protect that shipping lane. Pentagon spokesperson Sabrina Singh said, "The Houthis are the ones that continue to launch cruise missiles, anti-ship missiles at innocent mariners...What we are doing, with our partners, is self-defense." It was this escalation of military conflict that resulted in gold gaining $16.30 yesterday, and an additional $10 in trading today.

Wishing you as always good trading,