Gold hijacked the financial market headlines on Monday by descending deeper into the abyss.
Last Friday’s blockbuster US nonfarm report certainly lingered in the mind of many investors as the week commenced with the dollar and treasury yields pushing higher. Just looking at the economic calendar, one could see that this would be another eventful week packed with speeches from US central bank officials and key economic data from major economies.
Commodities stole the spotlight at the start of the week with oil extending losses as the Delta Covid-19 variant spread across Asia. In regards to gold, the precious tumbled to levels not seen in five months, cutting through multiple support levels like a hot knife through butter.
A sense of caution enveloped markets on Tuesday as persistent concerns over the spread of the Delta variant drained risk sentiment.
On the data front, the German ZEW Economic Sentiment dropped more than expected to 40.4 in August, down from 63.3 previous. Interestingly, the Euro weakened against almost every single G10 currency on Tuesday excluding the Swiss franc and Japanese Yen.
Our trade of the week was Brent oil which has shed over 7% this month. We discussed the possibility of increased oil price volatility amid Delta fears and other key risk events. On Thursday, OPEC’s monthly report revealed that the cartel stuck to its prediction of a strong recovery in global oil demand in 2021 despite concerns over the Delta variant of Covid-19. However, the International Energy Agency (IEA) adopted a gloomy outlook, warning that demand growth would slow sharply due to the spread of the variants. Brent remains under pressure on the daily charts, ending the week below $70.
Mid-week it was all about the US inflation report which seemingly peaked in July. Consumer prices printed at 5.4% which was the same reading as the prior month. The report cooled Fed taper bets, sending the dollar lower while propelling the S&P 500 and Dow Jones to record highs.
Markets adopted a wait-and-see approach near the end of the week as investors evaluated how the Fed would react to the latest inflation figures. Looking at commodities, gold staged a stunning rebound pushing back above the $1760 level. Uncertainty over the strength of the global economic rebound amid the Delta menace and a weaker dollar injected gold bugs with renewed confidence.
In fact, the precious metal concluded the week almost 1% higher despite the gut-wrenching selloff on Monday.
In other news, the UK economy grew by 4.8% during the second quarter of 2021. The growth rate was in line with market expectations but slightly below the Bank of England’s 5% forecast. Sterling depreciated against every single G10 currency this week excluding the Swiss franc.
Stocks across the globe hit record highs on Friday as equity bulls drew more strength from the US inflation data and robust corporate earnings.
King dollar found itself under pressure with the DXY tumbling towards 92.50 after consumer sentiment in the US plunged to its lowest since 2011.
This unexpected reading is likely to complicate things for the Federal Reserve as the taper debate rages on.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
