The Chinese economy is slowing, the Taliban have come to power in Afghanistan, and the delta strain of the coronavirus is gaining traction. What is happening in the gold market after the recent price crash, and why is it recovering so quickly? Olymp Trade analysts show how this affects the commodity, foreign exchange, and cryptocurrency markets.
- NZD/JPY −2.26%. Trading for a fall with a $100 and X200 multiplier could have earned $452.
- EUR/NZD +1.60%. Trading up with $100 and X200 multiple could have made $320.
- EUR/AUD +1.25%. You could have earned $250 by trading bullish at $100 and multiple X200.
Gold continues to rise, returning to $1,800 per troy ounce after the recent crash to $1,680. The fundamental reasons for the strengthening of the metal are falling yields on US government bonds and fears that the rapid spread of the Delta coronavirus strain may impede the recovery of the global economy.
In the middle of the week, the local support for the price was provided by the data on inflation in the USA. The underlying CPI rose 4.3% from July last year after increasing by 4.5% in June. The slowdown in inflation has put pressure on the dollar, reducing the likelihood of an imminent tightening of monetary policy. Following the dollar, the yield on 10-year Treasury bonds continues to decline, reaching 1.32%.
There are growing concerns about a new surge of Covid-19 due to the Delta strain of the coronavirus, which has higher infection rates. Some analysts believe several governments are overreacting to Covid-19 cases, fueling fears of another economic slowdown. All of this strengthens defensive assets and, above all, gold.
In general, we can say that the collapse of the gold price did not affect the fundamental data in any way. The precious metal still has a good chance of returning to its record value above $2,000 an ounce by the end of 2021.
Brent crude oil prices continue to fall and are trading near the strong support level at $66.5 per barrel. The pressure on the quotes is the increase in cases of infection with the delta strain of coronavirus around the world. China is a crucial consumer of hydrocarbons in the world. Investors fear that a new wave of restrictions could reduce the demand for fuel.
In China, a new outbreak coincided with extreme weather conditions. As a result, the growth of the country’s economy has seriously declined. Industrial production growth slowed down from 8.3% in June to 6.4% in July. Retail sales rose 8.5% against the forecast of growth of 11.5%. Investment growth slowed from 12.6% to 10.3%.
The deterioration of the epidemiological situation in China may result in a decrease in global oil consumption by more than 3%. If the trend continues, the oil market will face a period of slowing sales.
The Taliban swiftly came to power in Afghanistan and sparked geopolitical tensions. New outbreaks of the delta strain Covid-19. A potential slowdown in China’s economy, the second-largest in the world. These factors are forcing investors to turn to the assets of the safe-haven, first the US government bonds, and now the Japanese yen.
USD/JPY has moved in a sideways trend after breaking the uptrend line in January. Local support is at the level of 109.0, and the resistance is located at 110.5. If the geopolitical situation does not change for the better, a return can be expected to the upper end of the range.
For the US dollar, the next big date will be August 26, when the Jackson Hole summit will be held. Jerome Powell is expected to clarify how and when the Fed will begin to cut bond purchases. According to the President of the Federal Reserve Bank of Boston, the inflation target has already been fulfilled. Therefore, if the September employment report turns out to be as strong as the previous one, then the quantitative easing program for $120 billion per month may be completed by mid-2022.
The British pound has been under pressure during the week. In the middle of last week, the pound unexpectedly came under pressure due to looming fears about Brexit. Ireland began importing goods into the EU, bypassing the UK. GBP/USD is heading towards support at 1.3600.
Bitcoin continues to strengthen, coming close to the $50,000 mark. At the moment, the asset is consolidating in the area of $46,000-48,000 per coin. Glassnode analysts believe that another FOMO effect may soon emerge, which will fuel the current trend. They are based on the fact that the miners continue to accumulate reserves, pursue crypto exchanges, moderate outflows, and the net unrealized gains remain in the network.
Institutional investors are also building up their positions. Four U.S. asset management companies have increased their investment in the Grayscale bitcoin fund, and they have announced the purchase of 69,000 shares of the fund.
Meanwhile, the Central Bank of China continued to put pressure on crypto-related companies. The People’s Bank of China in Shenzhen have begun investigating the activities of organizations suspected of conducting illegal transactions with digital assets. The regulator “promptly put things in order and made adjustments” to the work of 11 companies.
Meme cryptocurrency Dogecoin continues to grow amid tweets from Mark Cuban and Elon Musk. During the week, its growth exceeded 45%. Mark Cuban, the Dallas Mavericks basketball team owner, has announced discounts on club merchandise for those who pay with Dogecoin. He also called Dogecoin “the ‘strongest’ cryptocurrency as a medium of exchange,” Elon Musk said that ” he’s been saying this for a while.”
Gold has almost completely recovered from the recent crash, gaining support as a defensive asset. Investors are again looking towards safe-haven assets due to the world’s tense geopolitical and epidemiological situation, so currencies such as JPY and CHF will soon be more volatile than usual.