Spot gold continues to traverse around the US$2000 level this week, with swings in sentiment towards the US Dollar having a big say on which side of this level gold resides on a given day.
The greenback weakness in the wake of softer economic indicators (initial jobless claims up, mid Atlantic business activity and existing home sales) gave gold a reprieve and paved the way for a move back over US$2k.
The see-saw relationship between gold and the USD has been on full display, with the fortunes of the precious metal being inversely tied to the yield expectations in the US.
If the scenario holds that the Fed hikes once more in May before then hitting the brakes on rates (as is currently implied by Fed funds futures), gold would be among the prime beneficiaries of this.
However, it should also be noted that a gap still exists between the Fed’s guidance on rates and the markets’ interpretation of the rate curve for 2023. So, it will be interesting to see who blinks first – the Fed or the market?
Oil remains sensitive to macro indicators
Oil traders took a dim view of the latest soft economic data from the US, with growth concerns putting the oil price onto a defensive footing as a fresh round of risk-aversion hit the broader market (WTI oil fell over 2% during the US session as US equities fell).
With upcoming OPEC+ supply cuts already factored-in, oil will remain acutely sensitive to macro indicators around the globe due to demand-side questions concerning the back half of 2023. Those questions most notably revolve around the strength of the Chinese recovery and the scope of any pending US recession.
There was little to cheer across Asian markets on Friday as equities followed the negative Wall Street tone. Unconvincing economic indicators and the ongoing corporate earnings season in the US is contributing to traders adopting a cautious stance to end the week.
Attention will turn to upcoming flash PMI data on Friday across the US, EU and UK on Friday to give us a sense of the relative state of economic health across the globe. If we see better PMI data from the likes of Europe and UK as opposed to the US, this may open the door for further upside in sterling and the euro – two currencies which have been benefitting of late from a more hawkish outlook versus the US Fed.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
