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Gold Corrects From 3-Week High; Euro Declines as US Import Prices Rise

Published 05/17/2024, 05:16 AM
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Gold Corrected from a 3-Week High

The gold price (XAU) corrected from a three-week high on Thursday as the US dollar recovered after a day's decline. XAU/USD lost 0.38% in yesterday's trading session.

Yesterday, the US Jobless Claims report revealed mixed data. The number of people receiving unemployment benefits in the US fell by 10,000 towards 222,000 in the previous week, more than the expected 220,000.

Still, the figures were significantly lower than the previous data for the week ending 3 May, which was 232,000. This discrepancy could support the US Dollar Index (DXY) and put downward pressure on currencies correlated with the US dollar. However, despite the US Jobless Claims data affecting gold negatively, the main focus remains on the possibility of rate cuts this year.

"Gold prices should remain strong as speculators continue to anticipate the start of the Federal Reverve's cutting cycle. We are projecting nominal and real bond yields to head lower in the back half of the year, and coupled with strong demand, we've raised our gold forecast to $2,250 in 2024 with elevated levels expected to persist into 2025," T.D. Bank economist Marc Ercolao said in a report.

This week's inflation reports showed signs of deceleration, which have been positive for the Federal Reserve (Fed). However, officials have not yet changed their stance on when they will begin reducing interest rates.

The President of the New York Fed, John Williams, stated that further evidence is required before considering adjusting interest rates. According to the CME FedWatch Tool, the chances of a rate cut by the Fed in September are now 68.4%.

However, some are sceptical about the growth in gold prices. For example, the Commonwealth Bank of Australia analysts wrote in a note:

"Gold prices may correct lower as markets look to reestablish the historical relationship between gold and the US dollar. It goes without saying that uncertainty will likely persist in gold markets in coming months."

XAU/USD has been trading bullishly during the Asian and early European trading sessions today. Gold rebounded from the local support level of 2,375 and is heading upwards, recovering from yesterday's decline. No important news is expected today, but some traders may close their positions, adding some pressure to the market.

Euro Declines from a 2-Month High as US Import Prices Rise

The euro (EUR) lost 0.16% on Thursday as the US Dollar Index (DXY) rebounded from a very strong support area of 104.000.

The bullish trend in EUR/USD, which started in mid-April, has recently strengthened. The pair rose towards a two-month high on Wednesday. Therefore, yesterday's decline was likely due to a technical correction as bulls took profit and closed long positions.

Indeed, yesterday's US macro statistics—Jobless Claims, the Philadelphia Manufacturing Index, Housing Starts, and Industrial Production—were weaker than expected, which should have supported EUR/USD. However, the 1.09000 resistance level proved too strong to break above.

Fundamentally, the divergence in interest rate expectations between the Federal Reserve (Fed) and the European Central Bank (ECB) continues to favor the US dollar.

The latest data showed that US import prices increased by 0.9% last month, raising concerns about future inflation, which could delay Fed policymakers' plans to cut interest rates. Meanwhile, investors continue to confidently expect the ECB to deliver at least two rate reductions in 2024.

EUR/USD was falling slightly during the Asian and early European trading sessions. Today, the macroeconomic calendar is relatively uneventful, so EUR/USD will likely continue to move within its long-term bullish trend, staying within a broad range of 1.08300 to 1.08900. The upcoming speech by Fed official Christopher Waller at 2:15 p.m. UTC today may trigger some market volatility, but large moves are unlikely.

Bitcoin Corrects, but the Trend Remains Bullish

Bitcoin (BTC) decreased by 1.52% on Thursday after failing to hold above 66,000.

This week's 13F disclosed the buyers of spot Bitcoin exchange-traded funds (ETFs) and the sizes of their positions. 13F filings are quarterly reports required by the United States Securities and Exchange Commission (SEC) that reveal the equity holdings of institutional investment managers controlling over $100 million.

The report offers transparency into their investment positions. In a post on social media platform X (formerly Twitter), Vetle Lunde, a senior analyst at K33 Research, shared the chart. He wrote:

"According to 13F reporting, 937 professional firms were invested in US spot ETFs as of 31 March. In comparison, gold ETFs had 95 professional firms invested in their first quarter (Bitwise)".

Bloomberg Senior ETF analyst Eric Balchunas noted that the largest ETFs have drawn the most institutional capital, with BlackRock (NYSE:BLK)'s IBIT securing over 400 holders. While calling this a 'huge success', Bitwise Chief Investment Officer Matt Hougan said:

"This is absolutely massive. For any financial advisor, family office, or institution wondering if they were the only one considering Bitcoin exposure, the answer is clear: You are not alone."

However, he noted that with more than $50 billion in assets under management (AUM), professional investors own just 7–10% of the total investment, while K33 Research data shows this share to be 18%. Hougan argued that the media portrayal of spot Bitcoin ETFs as retail-driven funds might overlook a critical emerging trend, leaving him 'incredibly bullish' based on the initial 13F filings.

BTC/USD was increasing during the Asian and early European trading sessions.

Mike Novogratz, CEO of Galaxy Investment Partners, suggested that the next few months could be pivotal for the crypto market as it reacts to new narratives and regulatory developments. He also recently predicted that Bitcoin's price would oscillate between 55,000 and 75,000 for some time, indicating a consolidation phase before any significant moves. Today's key levels to watch are 64,800 and 66,400.

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