17 May 2021

Gold Shines Brighter Amid Inflation Concerns

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News shaping
the markets today

     

What’s happening: Gold prices settled higher on Friday, recording gains for the week.

What happened: Gold prices spiked on Friday, after remaining volatile through the first half of the week. The yellow metal was supported by a decline in the US dollar and Treasury yields.

US assets came under pressure on Friday on disappointing retail sales data. However, prospects of the Federal Reserve raising interest rates sooner than expected kept gold prices in check.

Why it matters: A higher-than-expected inflation rate announced by the US on Wednesday resulted in a weekly rise in bond yields along with some gains for the greenback, which pushed gold prices to their weakest intraday level in a week.

However, US retail sales released on Friday showed no growth in April, versus market expectations of 0.8%. This followed 10.7% growth in retail sales in March, buoyed by stimulus checks.

The weaker-than-expected retail sales data exerted pressure on the yield on 10-year US Treasury notes, increasing the appeal of non-yielding assets, like gold. The US dollar index, which measures the performance of the greenback versus other major rivals, also lost 0.4% on Friday.

Meanwhile, Fed officials reiterated that any increase in inflation is likely to be short-lived and pledged to hold interest rates at record lows till the economy reached full employment levels.

“Barring short-term corrections, a dovish Fed and rising inflation expectations are likely to keep gold price risk skewed to the upside over the course of the year,” Standard Chartered analyst Suki Cooper said in a note.

June gold gained 0.8% to close at $1,838.10 an ounce on the Comex on Friday, after adding around 0.1% in the previous session. July silver rose 1.1% to settle at approximately $27.37 an ounce. For the week, gold gained 0.4%, while the white metal slipped around 0.4%.

Among other metals, July copper lost 0.8% to reach $4.65 a pound, notching a weekly decline of 2%. June palladium rose around 1.1% to $2,894.60 an ounce, ending the week lower by around 1%.

What to watch: Traders will keep an eye on the covid-19 situation in India and Brazil, which have been reporting record high new daily cases and deaths. Restrictions in these regions have taken a toll on the demand for physical gold.

On the other hand, gold could extend last week’s gains, if US data releases indicate a slowdown in the economic recovery.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of economic data from the country.

Context: The CAD/USD forex pair rose on Friday, recording gains for the seventh straight week.

Details: The loonie has gained more than 5% since the start of 2021, notching the biggest increase among currencies of the G10 nations. Speculators have increased their bullish trades on the currency to the strongest level since November 2019, according to the US Commodity Futures Trading Commission.

The continuous rise in the Canadian dollar raised concerns around Bank of Canada’s interest rate decision, as a rising currency spells headwinds for the country’s exports and business investment.

The Canadian currency was also buoyed by the rising price of crude oil, which is one of the country’s major exports. WTI crude oil futures jumped 2.4% to settle at $65.37 a barrel on Friday. Oil prices have strongly rebounded so far this year with the recovery in the global economy gaining momentum.

On the economic data front, Canada’s factory sales rose 3.5% in March, while wholesale sales grew 2.8%.

The CAD/USD forex pair rose 0.5% to reach 1.2105 on Friday, notching a weekly gain of around 0.2%.

Canada's 10-year yield remained almost flat on Friday, after hitting its strongest intraday level in eight weeks in the previous trading session.

What to watch: Traders await data on Canada’s housing starts and foreign stock investment. Housing starts in the country, which jumped 21.6% to a record high level of 335,200 units in March, are expected to decline to 292,500 in April.

Rising covid-19 cases in some parts of the world remain a top concern for markets, with total global infections surpassing 162.7 million.

Other Markets: US indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.06%, 1.49% and 2.17%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Japan’s machine tool orders, India's wholesale prices, Italy’s inflation rate, Spain's balance of trade, Turkey's government budget balance, South Africa's SACCI business confidence index, Brazil's central bank focus market readout, Russia's gross domestic product as well as America’s New York Empire State manufacturing index and NAHB housing market index.

 

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