Wednesday, May 22, 2024

Gold Faces Back-to-Back Weekly Decline Amid Rising US Inflation and Hawkish Fed Outlook: Implications for Investors

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Gold Faces Second Consecutive Weekly Decline Amid Hawkish Federal Reserve Sentiments

The value of gold experienced a modest increase of 0.45% on Friday, yet it concluded the week with a decline for the second consecutive time. This downward trend is attributed to the unexpected rise in US inflation, which has dampened hopes for an imminent interest rate reduction by the Federal Reserve (Fed).

Recent data highlighted a more significant increase in US producer prices for January than anticipated, following a report on Tuesday that revealed consumer price growth in the US had not slowed as expected. Everett Millman, a chief market analyst, commented on the situation, noting, “As the Fed is unlikely to cut interest rates in March, gold will probably encounter difficulties in surpassing the 2,000 level.”

The likelihood of the Fed easing its monetary policy in March is currently deemed slim, with just an 11% chance according to market projections. Similarly, expectations for a rate cut in May are not much higher, with only a 33% possibility being priced in. Despite gold’s reputation as an inflation hedge, its attractiveness diminishes amidst high-interest rates since it yields no passive income.

Fed officials have expressed a need for patience before considering rate cuts, with Fed Atlanta President Raphael Bostic highlighting the requirement for more time to assess the economic outlook. Contrastingly, gold demand in physical markets has seen an uptick, particularly in India where premiums soared to a more than 4-month high due to increased purchasing by jewelers ahead of the wedding season.

The Euro Holds Near 1-Week High Amid Mixed Monetary Policy Signals

The euro witnessed slight gains of 0.03% in a volatile trading session, with EUR/USD initially falling sharply after the US Producer Price Index (PPI) report before recovering following a weaker-than-expected US Consumer Sentiment report. Such fluctuations reflect mixed expectations regarding the Fed’s future interest rate actions, with markets still foreseeing over 100 basis points worth of rate cuts by 2024.

Meanwhile, expectations for the European Central Bank (ECB)’s interest rate direction remain similar, with ECB policymaker Isabel Schnabel indicating that Europe’s sluggish productivity growth may delay the decrease in inflation to the bank’s 2% target. This suggests that the record-high base rate might be maintained longer than anticipated.

Today, low volatility is anticipated across Forex pairs due to a lack of economic releases and bank holidays in Canada and the US, keeping the short-term bias for EUR/USD bullish as it trades above the significant intraday level of 1.07500.

Bitcoin ETFs Witness Significant Inflows; Cryptocurrency Maintains Stability

Last week, Bitcoin reached the 52,800 mark alongside Bitcoin ETFs, which saw $2.2 billion in net inflows, highlighting a robust week for these investment products. Notably, a significant portion of the capital was directed towards BlackRock’s iShares Bitcoin Trust (IBIT), reflecting growing investor interest in the cryptocurrency following the approval of spot Bitcoin ETFs in the US.

As the cryptocurrency market awaits potential volatility, indicated by a record high in open interest for Bitcoin futures, the direction of BTC/USD in the coming days remains closely watched by investors. A downturn below the 49,000 level could signal a correction, while a rebound from this threshold would suggest the continuation of the bullish trend.

Despite the current sideways movement in the market, the overall increase in Bitcoin’s value and interest in Bitcoin ETFs underline the growing acceptance and optimism surrounding cryptocurrencies as viable investment options.

Jordan Clark
Jordan Clarkhttps://www.businessorbital.com/
Jordan Clark brings a dynamic and investigative approach to business reporting. Holding a degree in Business Administration and a certification in Data Analysis, Jordan has an eye for detail and a knack for uncovering the stories behind the numbers. His career began in the bustling world of Silicon Valley startups, giving him firsthand experience in tech entrepreneurship and venture capital. Jordan's reports often focus on technology's impact on business, startup culture, and emerging

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