Gold Eases As Traders Assess Russia-Ukraine War

The news shaping the markets today

A Ukrainian fuel storage base was destroyed by Russian missiles in the Kharkiv region. Russia continuing to attack Ukraine, despite sanctions, sent WTO crude prices higher this morning.

Australia’s trade surplus narrowed sharply to A$7.46 billion in February, from A$11.79 billion in the prior month. The latest reading also missed the consensus estimate of A$12 billion, exerting pressure on the AUD/USD forex pair.

The Philippines reported a decline in its unemployment rate to 6.4% in February, from 8.8% in the year-ago month. However, the PHP/USD pair declined in forex trading this morning.

Colombia’s exports grew 43% year-on0year to $4.2 billion in February, from a 44.8% surge in the prior month. However, the COP/USD forex pair remained flat after the news.

Canada’s Ivey Purchasing Managers Index rose to 74.2 in March, from 60.6 in the previous month. Despite this, the CAD/USD pair declined slightly in forex trading this morning, mainly on strength in the US dollar.

What’s happening: Gold prices settled lower on Wednesday, with traders monitoring the ongoing Russia-Ukraine war.

What happened: A surge in US Treasury yields exerted pressure on the yellow metal on Wednesday.

However, gold prices became volatile after the release of the minutes from the Federal Reserve’s latest meeting.

Why it matters: Gold prices had settled lower by around 0.3% on Tuesday, after the 10-year US Treasury yield hit around a two-year high, following comments from Fed Governor Lael Brainard regarding the central bank’s plans on reducing its balance sheet.

The Federal Reserve released the minutes from its March meeting on Wednesday, which offered more insights into the central bank’s measures to contain its balance sheet.

The Fed is expected to raise interest rates by 0.5 percentage points at its upcoming meetings in case inflation remains elevated. The minutes also indicated that the US central bank had not yet decided on beginning its balance sheet drawdown.

Yields continued to climb, taking the 10-year rate above 2.65% on Wednesday. The US dollar also remained strong, which typically exerts pressure on metals and commodities as these are priced in the greenback in global financial markets. A spike in the US dollar makes these asset classes more expensive for overseas buyers.

On the other hand, traders continued to assess the ongoing tensions in Ukraine after the US and EU imposed more sanctions on Russia.

Gold for June delivery declined by $4.40, or 0.2%, to close at $1,923.10 an ounce on the Comex, before the release of the Fed’s minutes. Prices of the safe-haven metal jumped to approximately $1,926 an ounce in electronic trading, immediately after the release of the minutes, but eased back to $1,921 soon after.

May silver slipped 0.3%, to close at $24.458 an ounce on Wednesday. May copper fell 1.2% to $4.738 a pound, while July platinum shed 2.1% to reach $953.10 an ounce and June palladium dipped 2.3% to settle at $2,184.70 an ounce.

What to watch: Traders will continue monitoring the developments in Ukraine. Rising covid-19 cases in some parts of the world will also remain a concern for the global financial markets.

The markets today

The British pound will be in focus today ahead of a couple of economic reports from the country

Context: The GBP/USD pair remained close to a three-week low on Wednesday, following recent comments by US Federal Reserve officials.

Details: Fed officials issued comments regarding their plans to reduce the balance sheet, which highlighted a growing divergence between the US and UK central banks in handling surging inflation levels.

Fed governor Lael Brainard said the US central bank could begin aggressively reducing its balance sheet as early as next month. The US Fed’s hawkish stance provided a boost to the greenback. Moreover, the difference in borrowing costs between the US and UK, measured by the spread between their 5-year yields, turned further negative on Wednesday, taking the variance to the most negative level since August 2019.

Market experts expect the Bank of England to hike its interest rates by an additional 138 bps (basis points) this year.

On the economic data front, the S&P Global/CIPS construction PMI for the UK came in unchanged at 59.1 for March, signalling continued strong growth in construction activity.

The GBP/USD forex pair settled at $1.3067 on Wednesday, after earlier falling to its weakest level since March 16. Against the euro, the sterling settled at 83.38 pence.

London’s FTSE 100 fell 0.3% to settle at 7,588 on Wednesday, after recording gains for three straight sessions.

What to watch: Traders await the release of economic data on the UK’s house price index and labour productivity. Average property prices in the UK, which rose 0.50% in February, are expected to rise another 0.7% in March. Labour productivity is projected to grow 1% on quarter in the final three months of 2021.

Investors will keep an eye on the Russia-Ukraine situation and rising covid-19 cases in China, Europe and other regions.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones, S&P 500 and Nasdaq 100 down by 0.42%, 0.97% and 2.17%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s industrial production, South Africa’s foreign exchange reserves, France’s foreign exchange reserves, China’s foreign exchange reserves, Eurozone’s retail sales and ECB monetary policy meeting accounts, Mexico’s inflation rate and monetary policy meeting minutes, Turkey’s gross foreign exchange reserves, US initial jobless claims, continuing jobless claims, natural gas stocks change and consumer credit, Russia’s foreign exchange reserves, Turkey’s treasury cash balance, as well as Argentina’s industrial production.