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Market News 【TOP1 Evening】Gold off 7-month low as dollar weakness; Oil gains as U.S. production slowly returns after freeze

【TOP1 Evening】Gold off 7-month low as dollar weakness; Oil gains as U.S. production slowly returns after freeze

Bitcoin rally faces potential test from falling market liquidity; Goldman sees Brent oil at $75 as supply response trails demand. Bond selloff prompts stock investors to confront rising rates.

TOPONE Markets Analyst
2021-02-22
437

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Gold 


Gold prices gained on Monday after hitting a more than seven-month low in the previous session, as support from a weaker dollar eclipsed pressure from firmer Treasury yields.


Spot gold rose 0.87% to $1797.36 per ounce, silver rose 1.01% to $27.521 per ounce by 18:00 (GMT+8).


"The dollar coming off is helping to negate the rise in yields," Howie Lee, an economist at OCBC Bank, said, adding, "gold is in a weird place while there's clearly a need for inflation hedging, firming risk sentiment has pressured gold." 


Apart from the $1.9 trillion U.S. COVID-19 aid that is expected to pass by the end of the week, investors await Federal Reserve Chairman Jerome Powell's testimony on the Semiannual Monetary Report to Congress starting Tuesday.      

        

"The rise in yields will be the major headwind for gold for now, but if Powell hints at any dovishness or implies that current yields are too high for sustained economic recovery, then we can see gold embark on a rally again," Lee said.


Meanwhile, Bitcoin rose as high as $58,350 on Sunday before retreating to about $55,528 as of 18:00(GMT+8) on Monday. The token has roughly tripled in the past three months but its liquidity has deteriorated, according to Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co.


"Market liquidity is currently much lower for Bitcoin than in gold or the S&P 500, which implies that even small flows can have a large price impact," he wrote in a note on Friday.


Bitcoin trading volumes are around $10 billion daily for the spot and futures market combined, compared with an equivalent figure of $100 billion for gold, Panigirtzoglou wrote. That's consistent with "much lower liquidity in Bitcoin than in gold," he said.


Cryptocurrencies have enjoyed a strong start to the year, leaving other assets in the dust. The Bitcoin faithful argues corporate treasurers and institutional investors are new sources of demand and that the token can hedge risks such as faster inflation. Others see a prime example of speculative froth stoked by hedge funds and day traders in markets awash with stimulus.


Forex


The U.S. dollar fell to a three-year low against its Australian counterpart and teetered near a three-year low against the British pound as progress in curbing coronavirus infections boosted sentiment for riskier assets.


The greenback also slipped toward a three-year low against the New Zealand dollar as traders sought currencies with close ties to the global commodities trade due to an improving economic outlook.


The U.S. dollar index rose 0.11% to 90.45 by 18:00(GMT+8) on Friday.


"Commodity currencies and the pound are particularly strong against the dollar, and this trend looks set to continue," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.


"Britain's vaccination programme is making a lot of progress. Economic activity is gradually returning to normal in many places, which puts some pressure on the dollar."


The Australian dollar hit $0.7892, its highest since March 2018 while the New Zealand currency rose to $0.7315, its strongest since April 2018.


Vaccine rollouts will ease risks to Australia's economy over the year, ratings agency Fitch said on Monday when it maintained the country's top AAA credit rating, albeit with a negative outlook.


The euro last traded at $1.2124


The British pound bought $1.4030, close to a three-year high.


Against the yen, the dollar held steady at 105.45.


Australia on Monday began its mass COVID-19 vaccine program as the country looked set to report no local cases for the third straight day, which gave the Aussie a boost.


Sterling is also in focus because British Prime Minister Boris Johnson will plot a path out of coronavirus lockdowns later on Monday, aided by one of the fastest vaccine rollouts in the world.


Dollar net short positioning fell last week to $29.09 billion, which is the lowest level since mid-December, according to calculations by Reuters and Commodity Futures Trading Commission data.


U.S. dollar net shorts have fallen for four straight weeks, which shows that there are still some investors who are optimistic about the greenback.


Long-term Treasury yields have been rising recently, and the United States has also improved its response to the coronavirus, which will lend the dollar some mild support, Daiwa's Ishizuki said.


Crude Oil


Oil prices rose on Monday as the slow return of U.S. crude output that was cut by frigid conditions raised concerns about supply just as demand is coming back from the depths of the coronavirus pandemic.


U.S. West Texas Intermediate (WTI) crude was at $59.466 barrel, rose 0.75%, Brent was down to $62.437 a barrel, rose 0.76% by 18:00(GMT+8).


Oil prices will rally sooner and higher than previously thought as the global energy demand recovery outpaces the supply response from the OPEC+ alliance, shale and Iran, according to Goldman Sachs Group Inc.


Consumption will get back to pre-virus levels by late July, while output from major producers is likely to remain "highly inelastic" to the rising prices, the bank said in a note. Goldman raised its Brent forecasts by $10 a barrel, to $70 next quarter and $75 in the following three months.


"This faster re-balancing during what was expected to be the dark days of winter will be followed by a widening deficit this spring as the ramp-up in OPEC+ production lags our above-consensus demand recovery forecast," bank analysts including Damien Courvalin said in the note.


Stocks


Stocks in Asia-Pacific were mixed on Monday trade.


Nikkei 225 rose 138.11 points or 0.46%, close at 30,156.03.


S&P/ASX 200 fell 12.90 points or 0.19% to close at 6,780.90.


Hang Seng Index fell 324.90 or 1.06% to 30,319.83.


South Korea's Kospi fell 27.87 points or 0.90% to 3,079.75


Taiwan capitalization weighted stock index rose 68.78 points or 0.42% to 16,410.16.


The sharp increase this month in U.S. government-bond yields is pressuring the stock market and forcing investors to more seriously confront the implications of rising interest rates.


The lift in yields largely reflects investor expectations of a strong economic recovery. However, the collateral damage could include higher borrowing costs for businesses, more options for investors who had seen few alternatives to stocks and less favorable valuation models for some hot technology shares, investors and analysts said.

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