The US dollar is pinned to the floor, as markets evaluate Fed’s tightening policy.
Should you add gold to your portfolio by 2022?
Update:Gold is falling from new eight-month highs of $1,903 in early Asia. This is due to a decline in market sentiment that is reducing the metal’s appeal as a safe-haven. Investors are hopeful that the meeting of US President Joe Biden with international leaders regarding a possible Russian invasion in Ukraine will encourage both warring parties to de-escalate ongoing geopolitical tensions.
The risk of an invasion by Russia on Ukraine’s border was widely sold to the US on Thursday. However, the Ukrainian government continued to deny such plans. Markets were rattled by reports of mortar shelling from the Ukraine military and rebels in four war-torn areas in the Donbas region in East Ukraine.
Given the lack of US macro data, geopolitical developments in Ukraine will continue to be the primary market driver for Friday.
On Thursday, the price of gold rose and was closing near $1,901 at $1.898, surpassing 1.54%. Despite the risk to gold from a higher real rate in a hawkish central banking regime, the uncertainty surrounding Russia’s NATO crisis over Ukraine seems to be driving solid demand for gold as an investment haven.
On Thursday, the US dollar index was unchanged as investors considered comments from NATO allies and officials who sent the message that war seemed imminent following shelling on Ukraine’s front line. The US Dollar ranged between 95.71 to 96.10 against a basket of its competitors (DXY). Wall Street stocks were hit hard with the S&P 500 falling 2.1% to 4,380.26, and the Nasdaq Composite sliding 2.9% at 13,716.72. The Dow Jones Industrial Average fell 1.8% to 34.312.03, its largest loss since 2022.
Investors still see a high likelihood of a Federal Reserve 50 basis point rate hike at its March meeting. Money markets had a 72% chance of a 50 basis point rate increase next month, compared to 80% at week’s beginning. This likely weighed on greenback. The 10-year US Treasury yield fell 8 basis points to 1.96%.
Are trend-followers accumulating at top?
This is the title of a piece by TD securities analysts who are, at the core bearish on gold. “Precious metals funds are now seeing an increase year-to-date in fund flows as participants build positions since February to protect against geopolitical risks. Is this sustainable if the geopolitical risk event recedes? The analysts wrote. “This question is crucial to our view for Gold Prices to consolidate beneath the weight of a Hawkish Fed.”
“Traders need to remember that geopolitical risks also carry a high time decay. This suggests that the Russia risk premium could be erased as soon as next week if troops return. We don’t see any evidence of sustained buying behavior. This suggests that gold may have been supported by a large one off purchase followed by a safe-haven bid amid tensions.
The daily chart shows that the price is trying to break through the long-term resistance. If the price does not move above the May 2021 highs then it will be refocused towards the $1880’s or lower, keeping the 61.8% golden ratio in view.
