As we detailed on Thursday, a major shakeup occurred in the foreign exchange market. The EUR/USD currency cross fell to the bottom end of its range, ceding more than two-thirds of one percent from its opening bids. One day, the strength of the US Dollar was attributed to a tentative announcement regarding a pending US-UK trade deal. This downward movement is an indication of how impactful that announcement was on the currency market.
As the market scrambled to process the news, US Dollar bids received a general-market boost, which had an outsized impact on other commodities. Markets were closed yesterday, but gold was under renewed selling pressure. It had fallen to the bottom of its daily range, approaching $3,300 per troy ounce. According to analysts, one of the primary drivers of this Gold price decline was the spike in US Dollar strength, which acted to drain demand for Gold.
The sharp decrease in Gold prices can largely be explained by widespread increases in Treasury yields. When yields are as high as they are today, investors flock back to fixed income. They complete this process because unlike other forms of currency, precious metals hold no interest. Investor sentiment turned against Gold, adding fuel to Gold’s fall. This change exposes the connection between currency fluctuations and commodity pricing, as the two often work in tandem.
During Thursday’s trading session, Gold had a difficult time keeping higher ground, mirroring overall market sentiment. The resulting price movement served as a reminder of just how rapid the shift in market conditions can be following major economic announcements and developing trade relations. Investors are watching these moves carefully as they could point the way for forthcoming changes with significant implications for currency and commodity markets.