Gold Corrects to the Downside and as Aggressive Buying Runs Out of Steam
The gold (XAU) price dropped by 0.24% on Thursday as traders took profit on their long positions after a very strong 3-week rally.
has risen by more than 10% since mid-February, but the bullish trend seems to be slowing as the gold price failed to hold above the pivotal 2,195 level.
“Overnight aggressive buying seems to have run out of steam, and gold prices are correcting, given that rates markets have only marginally discounted the risk of more rate cuts for 2024,” said Daniel Ghali, the commodity strategist at TD Securities.
Still, the overall sentiment in the gold market is decisively bullish, as almost all major central banks plan to reduce interest rates in 2024, while safe-haven flows remain strong due to geopolitical risks.
“The mood in the market is very bullish. So your hedge funds or any other short-term traders or trend followers are positioned for higher prices, and I think this is the segment that is in the driving seat while the physical gold market is rather soft,” said Julius Baer analyst Carsten Menke.
The main risk for gold is that investors’ interest rate expectations may begin to change. Indeed, yesterday’s higher-than-expected US Purchasing Managers’ Indices (PMI) figures triggered a downward correction in gold because data indicating a strong economic expansion decreases the chances of interest rate cuts.
XAU/USD was falling during the Asian and early European trading sessions. Today, the economic calendar is rather uneventful. However, Jerome Powell, the Chairman of the Federal Reserve, will give a speech at 1:00 p.m. UTC. His remarks may trigger some volatility in the market, but he will unlikely say anything new.
“Spot gold may retest support at $2,167 per ounce, a break below which could open the way towards $2,152–$2,161 range,” said Reuters analyst Wang Tao.
EUR/USD Declines on Better-Than-Expected US PMI Figures
The euro (EUR) lost 0.53% on Thursday as the US Purchasing Managers’ Index (PMI) report came out better than expected, and the figures were substantially higher than the eurozone’s data.
After rising briskly due to the dovish interest rate projection by the Federal Reserve (Fed) on Wednesday, declined yesterday. The latest economic data indicated that the US economy was doing much better than the eurozone’s, suggesting that interest rates in the US will eventually remain higher compared to Europe. Thus, investors are starting to favor the again. According to interest rate swap market data, traders are pricing in 90 basis points (bps) worth of rate cuts by the European Central Bank (ECB) and only 80 bps worth of reductions by the Fed in 2024. Furthermore, yesterday’s Swiss National Bank (SNB) decision to cut the rates may have had an additional bearish impact on the euro.
EUR/USD was falling during the Asian and early European trading sessions. Today, traders will receive more clues on the health of the eurozone economy when Germany publishes its Ifo Business Climate report at 9:00 a.m. UTC. Better-than-expected figures will likely trigger a minor upward correction in EUR/USD but probably no higher than 1.08700. Conversely, worse-than-expected data will put an additional bearish pressure on the pair, potentially pulling towards 1.08000.
Bitcoin Drops as the US Dollar Rises After an Unexpected SNB Rate Cut
On Thursday, (BTC) declined due to the strengthening US dollar and lost some gains made on Wednesday when the dovish Federal Reserve’s outlook pushed the pair higher.
The US dollar strengthened after an unexpected rate cut of 25 basis points by the Swiss central bank, and this may have influenced the decrease. This move negated the significant decrease the US dollar experienced on Wednesday when Fed Chair Jerome Powell expressed a dovish stance on the monetary policy as US inflation exceeded the forecast. Thus, the strengthening of the US dollar on Thursday could be attributed to investors’ anticipation that some major central banks might start cutting rates before the Fed does, as pointed out by the macro analyst Michael Kao.
Bernstein, a research and brokerage firm, adjusted its year-end prediction for Bitcoin’s price, raising it from 80,000 to 90,000 due to positive changes in market dynamics and the recent upward trend in cryptocurrency. Analysts Gautam Chhugani and Mahika Sapra noted that several factors support an optimistic outlook on BTC: strong inflows into exchange-traded funds, low miner leverage, and high network transaction fees this cycle. They believe these conditions have diminished the impact of halving on miners, allowing for sustained dollar revenues.
“Given general bull market conditions with strong ETF inflows, low miner leverage, and robust network transaction fees this cycle, the halving impact seems relatively mild on the miners, with dollar revenues cushioned,” Chhugani and Sapra said in a statement.
Although Bitcoin has dropped from its peak of over 73,000 last week, many analysts still predict a significant recovery for the cryptocurrency by the end of the year.
BTC/USD rose slightly during the Asian and early European trading sessions. Currently, Bitcoin enthusiasts have managed to overturn the decline observed on 19 March. Optimistic market participants are now seeing 73,800 as a potential short- to medium-term target.