GoldPrice.

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 may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.

Gold prices are heading into to the Christmas weekend with positive momentum and bid/asks well above $1800/oz on Thursday afternoon as the yellow metal enjoys a “Santa rally” of its own following a surprising market reaction to the most recent release of inflation data.

So, what kind of week has it been?

What we expected to be a relatively calm Christmas week mostly turned out to be so, with the interesting exception of Thursday morning’s inflation data set. The broader market reaction to November’s PCE reporting is giving gold spot prices another opportunity to close out 2021 with positive momentum.

The “core” (ex. fuel and food prices) rate of inflation in the US economy, as given in the Fed-preferred PCE report, rose slightly faster than expected over the 12 months ending in November 2021. The market projection this week was for an inflation rate of +4.5% YoY, the number reported on Thursday morning was +4.7%. While investors and observers might’ve expected this to be an overall negative impulse for gold prices (because it might imply even more pressure on the Fed to wheel around to hiking rates even faster)—and the initial move for gold was a steep slide—spot prices for the yellow metal have been driven directly higher since the start of this week’s final full market session in the US, trading just shy of $1810/oz on Thursday afternoon.

Gold seems to be benefiting from a more traditional tailwind thanks to perception of the precious metal as a useful hedge against inflation fears. This dynamic is possibly being amplified this week thanks to ever more sensationalist news coverage of inflation data, and is being mirrored in other charts as we also see the US Dollar weakening noticeably on Thursday. The stumbling Greenback—recently the biggest challenger to any risk-off impulse for investors to buy gold—is certainly helping to lift gold prices, even as the inflation data also appears to be spurring a rally in Treasury yields. Just earlier this week we saw how falling bond prices can weigh heavily on gold, as a spike in the US’ 10-year yield (Tuesday morning) coincided with the yellow metal’s weekly lows.

Realistically, it is difficult (although not impossible) to imagine Thursday’s trend in the Dollar and gold prices continuing for long. Whether it’s next week, or after the new year when investors and managers re-focus on the FOMC’s policy path for the first half of 2022, we can expect to see the correlation between gold prices and the Fed reaction functions that we’ve gotten used to: Implications that the Fed wants to (or needs to) accelerate the schedule of hiking rates will weigh down on gold prices. For now, however, it does appear that gold prices are taking an opportunity to consolidate Thursday morning’s gains and may be able to build a floor of support around $1800/oz before returning to a less encouraging market environment. The most immediate risk, as we saw play out last week, will be acute profit-taking near the close of Thursday’s session.

For now, traders, I hope you can get out and safely enjoy your weekend. For those that will celebrate, Happy Christmas! For the rest, enjoy some extra time off! After that, I’ll see everyone back here next week for our preview of the week ahead.