Gold Rises by Nearly 2% Amid Geopolitical Tensions
The gold (XAU) price rose by almost 2% on Thursday as geopolitical tensions continued to escalate.
Gold continues to gain from ongoing geopolitical risks and the anticipation of a rate cut by the Federal Reserve (Fed). Escalating tensions have reinforced the metal's appeal as a safe-haven asset: Ukrainian attack on Russia and market expectations of retaliatory strikes by Iran against Israel supported XAU/USD. Additionally, investors' sentiment regarding Fed interest rate cuts has become more cautious. The market is now guessing whether the US central bank will opt for a 50-basis-point (bps) reduction or a more modest 25-bps cut. The sentiment has changed after a notable decline in US initial weekly jobless claims reported yesterday, easing fears that a weakening labour market could indicate a recession. Strong ISM Services Purchasing Managers' Index (PMI) data for July further supported this stance.
Gold demand in India picked up this week because prices dropped, making it more attractive to buyers. However, the market's volatility caused some hesitation among purchasers. In China, the demand for gold increased, leading to higher premiums, even as the central bank hasn't added to its gold reserves for the third consecutive month. Meanwhile, gold was sold at steady premiums in Japan and Singapore as investors reacted to fluctuating market conditions.
XAU/USD corrected slightly during the Asian and early European trading sessions. Today, the formal macroeconomic calendar is rather uneventful, so XAU/USD may continue to rise. Gold's long-term bullish bias remained intact, supported by several fundamental growth drivers. These include ongoing global economic uncertainty, geopolitical tensions, inflation hedging, dovish central bank policies, and a weaker US dollar.
Euro Fluctuates in Absence of Significant Impulse
EUR/USD moved sideways within the 1.09000–1.09500 range on Thursday but stayed mostly unchanged. The US Dollar Index (DXY) rose by 0.33% after the US Jobless Claims report but lost all gains and finished the session rising by only 0.05%.
The number of people applying for unemployment benefits in the US decreased by 17,000 towards 233,000 in the period ending on 3 August, lower than market expectations of 240,000. This follows an upward revision of 250,000 for the previous week, the highest number in a year. Still, the US labor market has softened since its peak after the pandemic, but the labor market remains tight as the number of claims remained significantly higher than the average for this year. Meanwhile, the outstanding number of claims increased by 6,000 towards 1,875,000 during the week ending on 27 July—the highest since November 2021.
"Despite the volatility in claims data, especially around this time of year, the data helped allay fears of a more rapid deterioration in the labour market", said Taylor Nugent, senior markets economist at National Australia Bank (OTC:NABZY).
The probability of the Federal Reserve (Fed) reducing interest rates by 50 basis points (bps) at the next policy meeting has decreased towards 54% compared to 69% the day before. Now, the chance of a 25-bps rate reduction is 46%, according to the CME FedWatch Tool. Markets have been volatile lately, largely due to unexpectedly soft US employment figures released a week ago. The data brought down global stocks, while the demand for safe assets increased, and the euro rose to the highest levels since the beginning of the year.
EUR/USD has been trading sideways within 1.09000–1.09500 during Asian and early European trading hours. No major news is scheduled today, so the established trend will likely continue. Investors will now focus on the US Consumer Price Index report for July which is due next week.
Bitcoin Soars 10% Amid ETF Inflows and Retail Investor Comeback
Bitcoin (BTC) surged by more than 10% on Thursday following several factors, including positive inflows into US spot Bitcoin exchange-traded funds (ETFs).
Arthur Hayes, co-founder and former CEO of Bitmex, envisions Bitcoin soaring to unprecedented levels. He suggests the coin may reach hundreds of thousands or even $1 million, under the economic policies of either a Trump or Harris administration. Hayes contends that both leaders will likely resort to extensive money printing to fund their economic plans, which could drive a surge in cryptocurrency prices. He indicates that the resulting increase in money supply and potential financial instability will create an ideal environment for digital assets like Bitcoin to thrive. Another factor could be the return of retail investors to the crypto market, as suggested by an intelligence platform, which noted a significant upward trend in creating daily new addresses.
Bitcoin (BTC) surged by 25% since Monday, likely driven by a short squeeze. This development comes after negative Bitcoin futures funding rates, indicating high demand for short positions as traders were betting on a decline in Bitcoin's price. However, when the price of a heavily shorted asset like Bitcoin unexpectedly rises, short sellers are forced to buy back the asset to cover their positions, which can lead to a rapid price increase. This scenario, known as a short squeeze, appears to have been the catalyst behind Bitcoin's sharp 10% rally. Additionally, US spot Bitcoin ETFs recovered on Wednesday, with net inflows of $45.14 million following previous outflows. BlackRock's IBIT) spearheaded this increase with $52.52 million, while WisdomTree's BTCW also saw its largest inflow to date, receiving $10.5 million.
BTC/USD corrected slightly during the Asian and early European trading sessions. Today, the formal macroeconomic calendar doesn't feature any major data releases, so volatility may decline, and the short-term sideways trend may start.