Gold prices hovered just north of $3,300 during the American session on Wednesday, illustrating the tough battle faced by the precious metal today. Yet market conditions turned upside down. Improving relations between the U.S. and China reduced gold’s appeal as a hedge against uncertainty. The US Dollar climbed on the back of a strong Personal Consumption Expenditures (PCE) inflation print. This strength further compounded the difficulty for gold in finding its legs again.
Its strength came into focus as the US Dollar reacted bullishly to the latest PCE inflation release, coming in stronger than expected. This inflation report makes clear the economy’s resilience is a double-edged sword. Consequently, the Dollar is boldly looking past the tepid Gross Domestic Product (GDP) growth miss for Q1 2023. Our GDP shrank by 0.3% on an annualized basis. Inflation data that came out on Wednesday morning raised optimism for the US economic outlook.
In the euro markets, things were not so rosy either. By Wednesday’s close, the EUR/USD pair was below the 1.1400 level. The pair failed to capture the bullish momentum, despite the dismal US GDP figures. JOE BRYKSA / WINNIPEG FREE PRESS FILES Market participants seemed to overlook the alarming news of a recession upfront. First, they focused on the strength of the US Dollar, which prevented any positive movements for EUR/USD and GBP/USD.
The British pound was under pressure as GBP/USD traded well below the 1.3350 level on Wednesday. The USD/PKR pair dropped steadily as the US Dollar index soared. This driving force by far dominated any potential for rebound in the UK currency. Analysts noted that the combination of strong US economic indicators and easing global trade tensions created an unfavorable environment for safe-haven currencies.
Gold’s challenge to retake the $3,300 level illustrates how the investor sentiment has changed as a result of these recent events. With US-China trade tensions easing, many investors’ attention has turned. As market conditions have stabilized, this time they are overwhelmingly favoring riskier and more speculative assets over safe-haven options. As a result, gold’s attractiveness waned, and its price path encountered another strong wind in the face.