Gold has been playing a game of cat and mouse this week, dancing around the US$2000 level. It seems that the US Dollar is the puppet master, pulling the strings and dictating which side of the fence gold lands on. Whenever the greenback weakens due to softer economic indicators like initial jobless claims, mid-Atlantic business activity, and existing home sales, gold gets a breather and moves back over the US$2k mark.
It’s a see-saw relationship between gold and the USD, with the fortunes of the precious metal being inversely tied to yield expectations in the US. If the Fed decides to hike rates once more in May before slamming on the brakes (as implied by Fed funds futures), gold could be among the chosen ones to reap the benefits. However, there’s a gap between the Fed’s guidance on rates and the markets’ interpretation of the rate curve for 2023. Who will budge first – the Fed or the market? Only time will tell!
Oil traders, on the other hand, are feeling a bit down in the dumps after the latest soft economic data from the US. Growth concerns have put the oil price on the defensive, and a fresh round of risk-aversion hit the broader market. With OPEC+ supply cuts already factored in, oil will remain sensitive to macro indicators around the globe. We’re all curious about the strength of the Chinese recovery and the potential US recession that’s on the horizon.
Sadly, the Asian markets didn’t have much to smile about on Friday, with equities following the negative Wall Street trend. Uncertain economic indicators and the ongoing corporate earnings season in the US have made traders cautious to end the week. However, let’s not lose hope yet! We’re looking forward to upcoming flash PMI data on Friday across the US, EU, and UK. This data will give us a sense of the relative state of economic health around the world. If Europe and the UK boast better PMI data than the US, we might see sterling and the euro rise, thanks to a more hawkish outlook versus the Fed. Let’s cross our fingers and hope for the best!