Gold Sets an All-Time High on Rising Rate Cut Expectations and Persistent Geopolitical Risks
The gold (XAU) price rose 0.59% on Wednesday as investors continued to expect an easing of the US monetary policy soon. Meanwhile, safe-haven demand remained strong due to instability in the Middle East.
XAU/USD has been rising for 6 consecutive trading sessions now as geopolitical and economic uncertainty and increasing anticipations of interest rate cuts pushed the prices of safe-haven assets to an all-time high. The US macroeconomic data has been weaker than expected lately, increasing the probability of a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) in June. Yesterday's US labor market statistics further cemented investors' dovish expectations as employment figures were below the forecast. As a result, XAU/USD was increasing, especially given that hostilities in the Middle East and Eastern Europe continue to fuel safe-haven demand.
However, some analysts are starting to question the possibility of further gains.
"There's definitely been macro data that's pushed us in this direction and the follow on to policy expectations from the Fed but the response in the gold market has been multiples of what long-term fair value models suggest," said Michael Hsueh, the FX & Commodities Strategy analyst at Deutsche Bank.
Fundamentally, gold may be overvalued in the short term. Jerome Powell's speech, the Fed Chair, also contributed to the discourse, as he confirmed that the central bank needs more time and more confidence before cutting rates.
XAU/USD continued to rise during the Asian and early European sessions. Jerome Powell will continue to testify in Congress today and may provide more clues on future changes in US monetary policy. Otherwise, the US economic calendar is rather uneventful. The European Central Bank interest rate decision today at 1:15 p.m. UTC may potentially trigger some volatility in XAU/USD, but big surprises are unlikely.
"Spot gold may extend gains to $2,169 per ounce, driven by a strong technical wave. The basic assumption is that the uptrend will keep extending until a convincing reversal signal appears. The moderate consolidation below $2,152 is considered a preparation for a further rise," said Reuters analyst Wang Tao.
Euro Hits a 6-Week High Ahead of the ECB Rate Decision
The euro (EUR) gained 0.39% on Wednesday as the US Dollar Index (DXY) dropped sharply after two US labor market reports showed slower-than-expected rising employment.
Yesterday, the Job Openings and Labor Turnover Survey (JOLTS) report indicated that the number of vacancies fell to 8.86 million. In addition, another report from ADP Research Institute revealed that employment grew by 140,000 in February instead of an expected 150,000. Overall, these reports indicated that the US labor market was slowing steadily. Thus, the market immediately started to price in a higher probability of monetary policy easing in June. According to the CME FedWatch Tool, trades are now pricing in a 56% chance of a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) in June and a 12% probability of a 50-bps rate reduction.
Meanwhile, the data from the eurozone has been surprisingly upbeat lately. Yesterday's report showed that the German trade balance had a record surplus of 27.5 billion euros, while retail sales increased in January for the first time since October. This divergence in macroeconomic data pushed EUR/USD to a 6-week high. However, there is currently no divergence in monetary policy expectations between the ECB and the Fed. That is why it's important to watch today's ECB rate decision at 1:15 p.m. UTC for any new clues on the future path of eurozone interest rates.
EUR/USD was essentially flat during the Asian and early European trading sessions. Today, all eyes will be on the ECB rate decision at 1:15 p.m. UTC. The market expects the regulator to hold its refinancing rate at 4.5% and deposit rate at 4%. Traders should look for any clues on the future direction of the interest rate path in the Monetary Policy Statement and during the press conference at 1:45 p.m. UTC. The market expects almost 4 rate cuts this year and is pricing in a near 100% probability of a 25-bps- rate cut in June. The ECB’s forward guidance is unlikely to be more dovish than it already is. However, if officials acknowledge that inflation is under control, opening the way for more rate cuts this year, EUR/USD may drop, possibly below 1.08500. Otherwise, the pair may rise, probably above 1.09400.
Bitcoin ETFs Face a Record-High Net Inflow
Bitcoin (BTC) recovered by 3.5% on Wednesday after the panic sell-off that occurred on Tuesday.
On-chain data indicates that after Bitcoin reached an all-time high, short-term holders sold coins worth $2.6 billion. These sellers incurred losses as they entered the market during the surge that pushed BTC above 69,000, and they didn't have enough confidence to maintain their long positions through the subsequent sharp decline observed in BTC's value.
On the other hand, Blackrock (NYSE:BLK) capitalized on the recent decrease in Bitcoin prices. Their Bitcoin ETF, the iShares Bitcoin Trust (NASDAQ:IBIT), recorded its biggest single-day Bitcoin acquisition since their launch on 11 January. The purchase surge occurred as Bitcoin's price retreated after reaching a new record high. On Tuesday, IBIT had a record inflow of $788.3 million, pushing the total net inflow for 10 new spot bitcoin ETFs to $648.3 million. This contrasts with a $332.5 million outflow from the Grayscale Bitcoin Trust (GBTC). In terms of Bitcoin acquired, IBIT raked in 12,623 BTC on Tuesday, according to the Ishares website.
BTC/USD was moving sideways during the Asian and early European sessions. This week, the main event for the BTC traders is the release of the Nonfarm Payroll (NFP) report at 1:30 p.m. UTC on Friday. The report may trigger volatility in BTC/USD. Another factor that could add extra volatility to Bitcoin is the news regarding the conflict in the Middle East. Traders should closely watch any developments, as an escalation of the conflict could push BTC/USD to new highs.