Gold Whipsaws on Risk-Off Selling, Then Rallies on Cooler CPI

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.

Here’s what you need to know:

1. Gold traded in a tight range early in the week as weak Retail Sales and a stronger-than-expected Jobs Report pulled sentiment in opposite directions.

2. A sharp equity sell-off on Thursday triggered broad de-risking, and gold was sold for liquidity, driving spot down to the week’s low near $4,915/oz.

3. Cooler CPI data on Friday helped gold rebound above $5,000/oz as traders leaned into expectations that rate cuts could arrive sooner rather than later.

After retaking a position above $5,000 to begin the week, gold prices consolidated, helped in part by a disappointing print on January Retail Sales that reported 0% month-over-month growth of a crucial macro input last month (vs. expectations of +0.4%).

This amplified investors’ unease after some ugly private payroll numbers last week, alongside the earlier stages of what would eventually become an aggressive sell-off in the US stock market, focused around the tech sector and software businesses more specifically.

While the downside signalling was balanced out to some extent by a surprisingly strong result in the delayed January Jobs Report released Wednesday (NFP +130K, the largest monthly increase since early 2024, vs. +70K expected), gold traded relatively tightly in a band between $5010 and $5080/oz all the way through Wednesday’s session.

This appeared to be setting the table for a relatively inert week for the yellow metal.

However, it turns out that there is, in fact, such a thing as “too much risk aversion” when it comes to gold prices. Especially when gold’s valuation is already so close to all-time highs and up more than 50% in a year.

By Thursday morning, and particularly during pre-market hours in the US, investors were taking such a bath on aggressive losses that the tilt of risk-off trading blew past a point where gold would be valued as a run to safety and all the way to a flood of selling in the precious metal as high-paying long positions were liquidated for cash to shore up P&L and, likely in some cases, make margin calls.

The impact for gold spot was a Thursday morning drop to as low as $4915/oz, the nadir for the week.

Thursday’s drop for gold and spike in volatility were confined to the morning, for the most part. Spot and futures prices began retracing some losses in the afternoon, and by the time Asian markets opened for the final session, the weak spot had moved back above $5000 and continued to climb overnight.

By Friday morning, the view was that traders and money managers were already repositioning after the flash sale in preparation for the highly anticipated CPU data for January. This data set was the headliner for the week of macro data, after last month’s Fed Day reinforced (in the minds of investors, at least) a meaningful link between signs of the next drop in inflation and the timing of the next rate cut.

Friday’s CPI print implies a possible cut sooner than later, as “core CPI” dropped by the -0.1% expected from the month prior, while the headline CPI number fell farther than expected to 2.4%.

Whether the FOMC is looking for just the green shoots of cooler inflation or a series of declines is not entirely clear, but in the gold market at least, traders inferred the former.

Gold spot prices have climbed by more than +2% intraday as of lunchtime, and despite still aiming at a loss for the week, the going price of $5025 suggests gold ultimately ends the week with a more stable base as the second half of Q1 begins on Monday.

Things are quieter on the macro front next week, but on Wednesday, we may get a better look at the Federal Reserve’s thinking about short-term inflation targets and mapping another rate cut when January’s FOMC meeting minutes are published.

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.