In a week where gold prices saw extreme volatility… After peaking at a multi-week high on Tuesday, they drew new sellers just above the $3,385 level. Gold prices quickly shot up, although they’ve since pulled back some of the modest gains seen in Tuesday’s session. This change is propelled by evolving market conditions amid a strengthening US dollar.
On Tuesday, gold prices reached a seven-month high, causing major excitement and speculation among traders. Yet, that momentum was quickly lost as the markets began to respond adversely to troubling economic news. Today’s events led to fresh demand for US dollars. This transition marked a challenging backdrop for gold, a commodity usually considered a haven space. With the US dollar strengthening, a lot of traders had to re-position themselves. This new dynamic comes right before the key US Non-Farm Payroll (NFP) data expected this Friday, adding another dimension to potential market volatility.
In the capital markets, GBP/USD reversed sharply to back close to 1.3550. The duo came under pressure on the heels of resumed upside in the US dollar. Analysts predict this trend will only get worse if the dollar stays strong.
“GBP/USD reverses to near 1.3550 as US Dollar finds fresh demand” – FXStreet
Similarly, the Japanese yen stays quite weak, with the USD/JPY cross retaining strength above 143.00. Such a continued strength of the US dollar would impact currency pairs across the board and most commodities as well.
The US dollar has been lifted on optimism about trade deals between the US and Canada. At the same time, optimism about possible deals between the EU and the US further fuels this comfort. These changes have increased confidence in the greenback’s strength, bringing about a long overdue correction to positions in markets across the board.
As for gold, even though it’s come under significant recent selling pressure, analysts tell us that its bullish potential is still very much alive and well. Longer-term price outlooks in general still appear to allow for upward price movement, depending on macroeconomic forces.
“Gold price remains depressed amid modest USD strength; bullish potential seems intact” – FXStreet
Safe-haven buying persists with traders still viewing gold as an appealing investment. Moreover, despite a recent dip, they view it as one of the best hedges against economic headwinds. Gold prices vs. the rising US dollar value The value of the US dollar and gold are in perpetual opposition. Market participants are paying close attention to these dynamics as they digest recent news.