Higher Risk Appetite Sends Gold To 2-Month Low

What’s happening: Gold futures declined on Friday to record their lowest close in two months.

What happened: News of governments easing lockdown restrictions globally and reports of job additions by the US and Canada lifted investor sentiment, sending equities and stock index futures higher. Improved risk appetite led to lower demand for safe-haven assets like gold. 

Gold prices dropped more than 2.5% on Friday, falling for the third straight week as markets grew more optimistic about an economic rebound. The bullion is expected to recover slightly today, with investors seeking an attractive entry point for the precious metal.

Why it matters: Gold trading was already under pressure on Thursday after the ECB (European Central Bank) announced a higher-than-expected increase in its pandemic stimulus package, encouraging investors to opt for riskier assets. Stock markets around the world reached new three-month highs last week.

An addition of 2.5 million jobs in the US economy in May, compared to expectations of 7.5 million job losses, fuelled hopes for a faster recovery of the global economy. With the unemployment rate declining to 13.3% last month, versus expectations of a rise to 19%, safe-haven assets lost their appeal.

Gold also declined last week due to stronger yields and some recovery in the US dollar, which is another safe-haven option used by investors to diversify their portfolios.

XAUUSD spot slumped by $45 on Friday. August gold dropped 2.6% to settle at $1,683 an ounce on Comex, falling around 4% for the week. Gold futures climbed during the European session this morning, rising 0.9% to $1,698 an ounce.

In other metals, July silver lost 3.2% to $17.479 an ounce, closing at its lowest level in around two weeks. July platinum declined 4% to settle at $830.40 an ounce, down more than 5% for the week. September palladium rose around 1.6% at $1,952.60 an ounce, although it was down around 1% for the week.

What to watch: Traders await the US Federal Reserve’s two-day policy meeting this week. The central bank has infused massive stimulus and lowered interest rates to around zero to support the economy amid the coronavirus crisis. The outcome of the meeting will decide the fate of gold trading, as the unprecedented stimulus from the bank has been responsible for curbing demand for the metal.

The New Zealand Dollar will be in focus today, after intense forex trading sent the currency to its strongest level versus the US dollar since January.

Context: The New Zealand dollar rose slightly versus the greenback on Monday as the country’s Prime Minister Jacinda Ardern announced the lifting of all domestic restrictions related to covid-19.

Details: Ardern announced the decision to move New Zealand’s safety status to alert level 1 citing zero coronavirus cases following the recovery of the last covid-19 patient in the country.

The nation has had 1,154 total coronavirus cases with 22 deaths. There have been no new cases for the last 17 days in the country with only a single active case during this period.

Recent data from China showing a lower-than-anticipated decline in exports also supported the New Zealand dollar and other commodity-based currencies. Exports from China fell 3.3% to $206.81 billion in May, better than the expectations of a 7% decline.

The New Zealand dollar climbed to 0.6537 versus the greenback, reaching its highest level since January 29, before closing at $0.6512.

What to watch: Overall sentiment in the currency market has improved strongly, with traders hoping for a faster rebound from the pandemic as economies reopen following months of lockdowns. Traders await New Zealand’s manufacturing sales, consumer confidence and manufacturing PMI data later in the week. The US Federal Reserve’s meeting will also remain in focus.

Other Markets: US indices trading ended with gains on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 3.15%, 2.62% and 2.06%, respectively.

Russia’s total vehicle sales, Canada’s housing starts as well as the US consumer inflation expectations.

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