Gold prices are digging daily to $3,300 per troy ounce. The change in prevalence from familiar setting to unknown is not just market orthodoxy; it displays a major shift in market dynamics. The latest cause for gold’s attractiveness is a softening US Dollar. This transformation is increasingly making gold—which has long been a safe haven asset—an appealing investment vehicle. Today’s economic environment is much different. Relaxation of inflationary pressures in Britain paired with growing trade disputes between the US and China have increased gold demand.
Recent history in the stock market has captured investors’ attention. This sharp dollar decline has provided a very positive backdrop for gold and reignited safe-haven buying interest. The Greenback continues on a very bearish tone. All eyes of market participants will be upon Federal Reserve Chairman Jerome Powell’s seemingly pivotal speech for key clues derived from the magic eight ball about the future course of monetary policy.
The dollar has suddenly lost mojo, putting further pressure on the market. On the other hand, US dollar inflation in the UK is pushing up demand for gold. When inflation dips, interest in fiat currencies typically softens, sending investors scurrying to find shelter in precious metals. We all know that the intensifying US-China trade tensions are making everyone nervous about the economy. In response, investors have flocked to gold as a safe haven amid the turmoil.
In addition to the bearish dollar downside sentiment crossplay, EUR/USD benefitted from the relative bullish dynamic impacting the euro. It has since held on to these daily gains near the 1.1350 area, buoyed by the tide of dollar weakness. While this bearish tone has returned, the resulting effect has been a boost of strength for the euro itself against its American counterpart. March’s retail sales numbers were, to many observers, a surprise to the upside. The dollar took almost no notice indicating possibly deeper underlying weakness that may persist in the short run.
Wednesday saw more of the same for GBP/USD, which extended this run of good form. Nonetheless, it ran into strong selling interest above the 1.3250 level after recently printing multi-month peaks just shy of 1.3300. This swing back and forth is an example of the currency market’s extreme volatility and how real world events can drive trading strategy and sentiment.
Investors are continuing to play it safe. This is in part due to the fact that approximately 81.4% of retail investor accounts lose money when trading Contracts for Difference (CFDs) with these providers. This statistic is a sobering example of some of the risks built into trading, particularly in volatile markets like crypto.
Market participants can hardly be more excited to see what comes next. Powell’s speech will be the main event. Investors are looking for clarity about the next round of interest-rate increases and prevailing economic outlooks. Gold and currency values are in a continuous dialogue with each other, shaped by a myriad of factors. These are important external factors such as inflation rates, trade relations, and investor sentiment.