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Gold settles higher despite US dollar strength

 

Thursday, June 9, 2022

The news shaping the markets today

The European Parliament passed a resolution in favour of providing EU candidate status for Ukraine. The US dollar index traded slightly higher after the news.


US crude oil inventories grew by 2.025 million barrels in the week ended June 3, versus market expectations of a 1.917 million decline, which sent WTI crude prices higher.


Russia’s annual inflation rate fell to 17.1% in May, from 17.8% in the earlier month. However, the RUB/USD forex pair remained under pressure due to strength in the US dollar.


Colombia’s consumer confidence index improved to -14.7 in May, from the previous month’s reading of -17.5. Despite consumer morale climbing to the highest level since January, the COP/USD pair declined in forex trading this morning.


US wholesale inventories rose 2.2% to $861.8 billion in April, after a 2.7% increase in the prior month. However, the Dow Jones index lost around 270 points on Wednesday.

 

What’s happening: Gold prices recorded gains on Wednesday on concerns around the global economy.

What happened: Gold futures notched back-to-back gains, putting the safe-haven metal on track to recording a weekly gain.

The precious metal found support despite the US dollar index moving higher on Wednesday on concerns around rising inflation and the possibility of supply chain disruptions being longer lasting than earlier anticipated.

Why it matters: Gold received support on Tuesday, after the World Bank lowered its global growth estimates for 2022 and warned of the rising risk of stagflation. Global growth is likely to decelerate from 5.7% in 2021 to 2.9% in 2022, significantly below the 4.1% projected in January.

On Wednesday, the echoed the World Bank’s warnings, saying supply chain disruptions could be potentially long-lasting due to the Russia-Ukraine war.

The level of per capita income in developing economies is expected be around 5% below the pre-covid-19 pandemic levels this year due to continuing covid-19 and infections and the ongoing situation in Ukraine.

Rising concerns around inflation and economic uncertainties sent investors looking for safe-haven options. Gold prices climbed on Wednesday, despite a stronger greenback and rising US bond yields.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, rose around 0.2% on Wednesday. The rise in the US dollar makes assets priced in the currency more expensive for foreign currency holders and typically exerts pressure on the yellow metal.

The 10-year Treasury rate climbed above the 3% mark. The surge in bond yields also generally negatively impacts non-yielding assets, like gold.

Gold for August delivery gained 0.2%, or $4.40, to close at $1,856.50 an ounce on Comex on Wednesday. Silver for July delivery declined 8 cents to $22.09 an ounce, while July copper added 1 cent to $4.45 a pound. Palladium fell to $1,937.80, while platinum settled at $1,011.6.

What to watch: Traders will keep an eye on the release of US consumer price report due on Friday and the Federal Reserve’s policy meeting later this month. Investors will also monitor the Russia-Ukraine conflict.

The markets today

The euro will be in focus today ahead of the European Central Bank’s interest rate decision

Context: The EUR/USD edged higher on Wednesday following the release of Eurozone’s GDP report.

Details: The US dollar regained strength on Wednesday amid continued concerns around inflation around the world. Despite this, the euro managed to record some gains following the release of data showing that the Eurozone economy had expanded by 0.6% during the first quarter of 2022. This was sharply higher from the 0.3% estimate as well as the fourth-quarter’s 0.2% growth.

Compared to the same quarter in 2021, the Eurozone economy grew 5.4%, above the estimate of 5.1%.

The number of employed persons in the bloc increased by 0.6% to 162.9 million in the first three months of the year, versus a 0.4% rise in the prior period.

However, European equities fell for a second straight session on Wednesday, with the pan-European STOXX 600 declining 0.6%. Stocks of industrials and financials declined the most during the session.

The EUR/USD forex pair gained around 0.1% to settle at 1.0719 on Wednesday.

What to watch: Investors await the ECB’s interest rate decision today. The central bank is widely expected to hold rates at record low levels. While leaving rates unchanged during its April meeting, the ECB had confirmed plans for net purchases of €40 billion in April, €30 billion in May and €20 billion in June.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones, S&P 500 and Nasdaq 100 down by 0.81%, 1.08% and 0.76%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0712 and 1.0718 Negative
USD/CHF – 0.9785 and 0.9792 Negative
WTI Crude Oil – 122.12 and 122.48 Positive
FTSE 100 – 7579.13 and 7594.81 Negative
Dow Jones – 32862.91 and 32960.97 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0714, -0.05%) Dow ($32,869, -0.06%) Brent ($123.55, -0.1%)
GBP/USD (1.2535, -0.02%) S&P500 ($4,110, -0.10%) WTI ($122.02, -0.1%)
USD/JPY (134.24, -0.02%) Nasdaq ($12,595, -0.17%) Gold ($1,854, -0.1%)

What else to watch today

France’s payroll employment, Japan’s machine tool orders, Saudi Arabia’s industrial production, South Africa’s current account, gold production, mining production and manufacturing production, Mexico’s consumer price index, Spain’s consumer confidence indicator, Turkey’s foreign exchange reserves, Brazil’s inflation rate, US initial jobless claims, continuing jobless claims, and natural gas stocks change, as well as Argentina’s industrial production.


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