【Market Evening】Gold approached $1800, Dollar skyrocketed, Euro plunged

Gold hovers near one-month low

Gold prices pared early gains on Thursday to hover near their lowest levels in more than a month, bruised by an elevated dollar and yields after the U.S. Federal Reserve signalled it might raise interest rates sooner than expected.

Spot gold fell 0.43% to $1803.23 per ounce, silver fell 0.25% to $26.707 per ounce by 18:00 (GMT+8).

“Gold was crushed overnight by a more hawkish Fed. It has staged a modest recovery in Asia, but the rally looks more like speculative dip buying and fast money short-covering, than a vote of confidence in the yellow metal,” said Jeffrey Halley, a senior market analyst at OANDA.

“The recovery in gold should be approached with caution as we have yet to see how a change in tone from the Fed will fully play out in markets. Gold’s daily close below $1,797.50 will signal a deeper correction is in prospect.”

The Fed took a surprisingly hawkish tone as it handed down the decision on Wednesday. Out of 18 Fed officials, 11 forecast at least two quarter-point interest rate increases for 2023, in a clear sign that the central bank has begun asset tapering discussions.

“Bargain-hunting, safe-haven demand and buying the dips emerged as gold fell to $1,804, although the change in Fed’s script had benefited the dollar and Treasury yields rather than precious metals in the immediate term,” Avtar Sandu, a senior commodities manager at Phillip Futures, said in a note.

Dollar hits two-month high

The dollar rose to its highest level in almost two months versus major peers on Thursday after the Federal Reserve unexpectedly brought forward its projections for interest rate hikes into 2023.

The US dollar index rose 0.39% to 91.73 by 18:00(GMT+8).

"The Fed's super hawkish pivot should reinforce the lows and offer further near-term USD support," TD Securities analysts wrote in a research note.

"A double-whammy of higher rates and wobbly risk sentiment would result in a positioning squeeze and the start of a new narrative," possibly resulting in a 2% dollar rally through the summer, the note said.

The Federal Reserve’s hawkish turn prompted both Goldman Sachs Group Inc. and Deutsche Bank AG to abandon their calls that the euro will rally against the U.S. dollar.

“We continue to forecast broad U.S. dollar weakness, driven by the currency’s high valuation and a broadening global economic recovery,” but “more hawkish Fed expectations and the ongoing tapering debate look likely to be a headwind to dollar shorts over the near term,” Zach Pandl, Goldman’s co-head of global foreign-exchange and emerging-market strategy, said in a report.

Pandl said the team initiated the recommendation on April 16 at 1.20, similar to current spot levels.

In closing out its recommendation, Deutsche Bank’s George Saravelos said there’s now “greater scope for a front-end real rate repricing in the U.S. yield curve” and also “room for higher volatility.”

Both factors are bullish for the dollar, he said, adding that “the support the Fed was providing for EUR/USD upside is no longer there.”

Oil  stay near multi-year highs

Crude oil prices dipped on Thursday as a stronger U.S. dollar brought them off multi-year highs, but losses were limited by a big drop in U.S. crude oil inventories.

U.S. West Texas Intermediate (WTI) crude was at $71.730 a barrel, rose 0.43%, Brent was up to $73.531 a barrel, rose 0.31% by 18:00(GMT+8).

“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

“The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.”

Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.

Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

“This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

Asian stock markets lower

Asian-Pacific stock markets followed Wall Street lower Thursday after the Federal Reserve indicated it might ease off economic stimulus earlier than previously thought.

Nikkei 225 fell 272.68 points or 0.93%, close at 29,018.33.

S&P/ASX 200 fell 27.20 points or 0.37% to close at 7,359.00.

Hang Seng Index rose 34.34 points or 0.12% to 28,471.18.

South Korea's Kospi fell 13.72 points or 0.42% to 3,264.96.

Taiwan capitalization weighted stock index rose 37.83 points or 0.22% to 17,345.69.

European market opened lower on Thursday, At press time: 

FTSE 100 Index fell 36.30 points or 0.51% at 7,148.65.

Germany DAX 30 fell 18.95 points or 0.12% at 15,710.57.

France CAC 40 rose 13.13 points or 0.20% at 6,652.65.

BioNTech co-founder and CEO Ugur Sahin warned of the possibility for a resurgence of Covid-19 at Barron’s Investing in Tech conference on Wednesday. 

The CEO said there’s concern about a resurgence of the virus caused by the Delta variant that has been tied to the recent outbreak in India. “In the United Kingdom, where about 50% of people had already had their second shot, the Delta variant is still increasing,” Sahin said. 

“If we are not careful and careful enough, we may face, in certain areas, a fourth wave,” Shaheen warned. Such an outcome could be avoided if the sweeteners were kept on standby and opened slowly. He said looking at COVID-19 data, such as infection rates, would also be critical.

“If the numbers are going down, that’s fine. But if they’re increasing, we can move on to the next wave,” he said. Shaheen anticipates the need for booster doses, as antibody levels have fallen six months after full vaccination.

The Delta variant was first detected in India in October last year.

UK authorities have estimated the Delta variant is 40 per cent more infectious than the Alpha variant that sent Britain into lockdown at the start of the year.

Focus Tonight

20:30(GMT+8): United States Continuing Jobless Claims (05/JUN), Forecast: 3430K, Previous: 3499K;