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CFD Markets News and Forecasts — 21-07-2024
- Gold price holds positive ground near $2,410 in Monday’s early Asian session.
- High uncertainty surrounding the US Presidential election tends to be good for gold, a safe-haven asset.
- The first reading of US PMI, Q2 GDP, and June PCE data will influence the yellow metal this week.
Gold price (XAU/USD) attracts some buyers around $2,410, snapping the three-day losing streak during the early Asian session on Monday. The yellow metal edges higher amid the political uncertainty in the United States after the report that US President Joe Biden dropped out of the US presidential race.
On Sunday, US President Joe Biden announced that he will end his reelection bid and will speak to the nation later this week in more detail about his decision. Several experts argued that Biden’s ending of his reelection campaign would increase market volatility. “With uncertainty about who the candidate will be, investors will seek a safe haven until they can assess whether or not the replacement for Biden will continue or break from the high (and possibly higher) tax, more regulation, and more government intervention policies of the Biden administration,” said Peter Earle, senior economist at the American Institute for Economic Research.
Additionally, the worrisome headline in China, the world’s second-largest economy, lifts the precious metal. China's $715 billion hedge fund industry is facing renewed pressure from stricter regulations coming into effect next month, pushing some investment companies to seek additional funding from white knights or even shut shop, according to Reuters. New guidelines for the fragmented industry from August 1 will impose higher asset thresholds for funds to operate, as well as tough investing and marketing rules.
On the other hand, the dovish comments from the Federal Reserve (Fed) policymakers and the increased likelihood of Fed rate cuts in September failed to boost the non-yielding Gold price on Friday. The International Monetary Fund (IMF) said last week that the Fed should not cut interest rates until late 2024. Investors will monitor the US economic data this week. The preliminary US S&P Global PMI and Gross Domestic Product (GDP) for Q2, along with the Personal Consumption Expenditures - Price Index (PCE), will be in the spotlight this week. The stronger-than-expected readings could dampen the hope for a Fed rate cut this year and cap the upside for the Gold price.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Most recent article: US President Joe Biden stands down from reelection, endorses Kamala HarrisMost recent article: US President Joe Biden stands down from reelection, endorses Kamala Harris
US President Joe Biden dropped out of the US presidential race Sunday, per CNN. Vice President Kamala Harris solidified her position as the leading Democratic candidate in the betting market.
Former President Donald Trump remains the betting favorite in the Presidential race after Joe Biden confirmed he would step down as the Democrate candidate.
Harris' odds of becoming the next president soared. However, the vice president is still significantly behind former President Donald Trump in November's presidential election. These are the betting odds, you can't legally bet on elections in the United States.
Market reaction
The US Dollar Index (DXY) is losing 0.14% on the day to trade near 104.20, as of writing.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Following a long week of political turmoil, United States (US) President Joe Biden announced on Sunday that he will end his reelection bid and will speak to the nation later this week in more detail about his decision.
Throughout the last couple of weeks, different members of the Democratic party, including senior lawmakers, have called on President Joe Biden to step aside as the party’s nominee. Additionally, former US President Barack Obama said that Biden’s path to victory had greatly diminished and that he should rethink whether he can win, while former House Speaker Nancy Pelosi has told Biden that she is pessimistic about his chances.
President Biden posted a letter in his official X account that stated: “ I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term.”
After the letter, Biden posted: “My fellow Democrats, I have decided not to accept the nomination and to focus all my energies on my duties as President for the remainder of my term. My very first decision as the party nominee in 2020 was to pick Kamala Harris as my Vice President. And it’s been the best decision I’ve made. Today I want to offer my full support and endorsement for Kamala to be the nominee of our party this year. Democrats — it’s time to come together and beat Trump. Let’s do this.”
The odds of Donald Trump’s victory seem to have increased with turmoil in the rival party. Financial markets may welcome the news and seek high-yielding assets at the beginning of the week.
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