The gold market is trading near daily lows after losing more than $70 to below $2,000. The sale coincided with oil falling 10% and risky assets like stocks and crypto seeing strong gains.
Key to risk appetite depends on how long the war in Ukraine will last
Commodities cooled Wednesday as oil, platinum, silver, copper, wheat and corn reported losses. West Texas Intermediate crude fell 10% to $110, while Brent crude fell 11% to $114. Edward Moya, senior market analyst at OANDA, comments:
WTI crude is now 10% lower than the highs made at the beginning of the trading week, but the pullback seems premature as the risk of short-term supply disruption remains extremely high. Coordinated efforts to tackle the global energy crisis will help ease some of the pressures we are seeing, but the key to risk appetite is how long the war in Ukraine will last.
Risky assets, on the other hand, recovered. The Dow rose 2.35% and the S&P 2.79% higher on the day. Bitcoin also rose 8%, along with US stocks, from $39,000 to over $42,000. cryptocoin.com As we reported, gold failed to hold its gains after hitting new record highs of $2,078.80 on Tuesday. April Comex gold futures were last trading at $1,987, down 0.06% on the day.
Edward Moya: Gold can form a trading range between these levels
The precious metal reacted to the recovery in risk sentiment on Wall Street, but the move may be premature as the situation in Ukraine has yet to improve. Edward Moya says:
Tuesday’s rally was more of a dip-bought due to oversold conditions. But gold will likely not see a quick fix due to this highly complex situation, as Ukraine will not be willing to recognize Crimea and the separatist-held territories as Russia.
The optimism on Wall Street came after Ukrainian President Volodymyr Zelenskiy said his country was “calming down” on joining NATO. On Thursday, it will be two weeks since Russia invaded Ukraine. Edward Moya states that gold, like other commodities, will continue to be very volatile as markets continue to absorb developments in Ukraine and potential new supply shocks.
The precious metal will likely rebound around the $2,000 level. Gold could continue to slide if US stocks continue to defend the lows made during the initial shock at the start of the conflict. Gold could form a trading range between the $1,965 and $2,050 levels.
Important support level to watch for gold
DailyFX strategist Michael Boutros says a key support to watch is $1,922. He said on Wednesday, “Trade remains constructive above $1,922 (main support). Losses will be limited to this threshold,” he predicts.
Han Tan, chief market analyst at Exinity Group, thinks gold promises further gains as geopolitical tensions remain high and uncertainty over the global economy rises. The analyst makes the following statement:
Inflation shocks could strengthen the hawkishness of other major central banks. However, the traditional role of gold as a hedge against inflation comes to the fore, especially amid fears of stagflation. If markets perceive a greater risk of a global recession triggered by a ‘policy error’ from a major central bank, this could translate into greater demand for safe-haven assets.
US CPI data will be important for Fed’s stance
In addition to the geopolitical aspect, a critical macro data that the markets watch carefully is the US CPI figures on Thursday. Economists say February inflation is likely accelerating and is far from peaking. Market consensus forecasts forecast the annual CPI headline figure to be 7.9% in February, after rising to a 40-year high of 7.5% in January. DailyFX chief strategist John Kicklighter comments:
The risk is that there will be an even greater rise in prices. There was also a dramatic increase in commodity prices in the free market. Upside pressure spread to metals and ‘softs’ in the last weeks of February (measuring period) as energy costs rose sharply.
The latest CPI figures come just a week before the Federal Reserve’s interest rate announcement. Federal Reserve Governor Jerome Powell has pledged to support a traditional 25 basis point increase. John Kicklighter adds:
After the latest market volatility and Ukraine uncertainty, we saw the probability of a 50bp increase of up to 40% on Friday to drop to almost zero. CPI data may change this view.
The recent rise in commodities worries many that inflation will remain high for longer. DoubleLine Capital CEO Jeffrey Gundlach said in a webcast Tuesday that inflation could soar to 10% this year, forcing the Federal Reserve to be more aggressive. Jeffrey Gundlach commented:
Some people are raising the narrative that with the war in Ukraine, the Fed is unlikely to be less aggressive in raising interest rates. I absolutely disagree with this. That depends on where commodities are going, but I think we could go to a 10% CPI before there is any relief.
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