Gold spiked to nearly USD 2,050 per troy ounce this morning amid the US inflation report, then dropped nearly USD 20 per oz on profit taking.
Lask week, US Federal Reserve announed a rate hike of 0.25 percenrage point. In general, higher interest rates are typically bearish for yellow metals – Gold and make precious metals less attractive as an alternate investment. However, a pause or an end to the rate hikes may send the bullion markets bullish again.
Global investers currently are watching closely in the standoff in Biden and congressional leaders over the US debt ceiling and also a potential banking crisis. Both factors will weight heavily with the US and global econimic growth. And the uncertainty in the US markets will push investors turn to the haven asset – gold market.
The extreme wealth and extreme poverty have increased simultaneously for the first time in 25 years. The world’s wealthiest residents, which are around 1% of the global populations have been getting far richer. The wealth accumulation of these super-rich accelerated far faster than the rest of the wolrd else over the past two years according to the Oxfam’s annual report. Meanwhile, the many of the less fortunate are struggling.
The wealthy are benefiting from the policies during the pandemic these two years. At the start of the pandemic, global governments, especially wealthier countries, poured trillions of dollars into their economies and stock markets to prevent a collapse. That prompted triggered tocks and other assets to soar in value. So much of that cash ended up with the ultra-wealthy as well as taxation weren’t not in place. Therefore, the riches become richer during the pandemic.
Narrowing the gap between the rich and the poor will be one of the great challenges in the post-pandemic period for many governments globally.
European Union and the United States have barred the import of Russian oil to cut off the revenue source for Kremlin and force Vladimir Putin to reconsider the war in Ukraine. However, it seems like this measure hasn’t worked.
When EU and the US looked at the data, they found that Russia is making just as much money from oil export as it was before the invasion of Ukraine. At the same time, global inflation is surging, and it generates Politian pressure on leaders like US president Joe Biden, British Prime Minister Boris Johnson, and French President Emmanuel Macron.
In the recent G7 meeting, these leaders tried very much to reach a consensus on that to do next. However, on oil, only few options are available. several measures were being discussed. For examples, price caps on Russian oil imports and centralized purchasing, insurance bans on ships. Unfortunately, these tools have downsides, and they could push the oil price and inflation rate even higher. These prospective measures may come with significant costs directly to consumers in the US and Europe.
Nevertheless, there is an uptick in exports to Asia. China is currently taking advantages of huge price discounts. Russia is selling barrels of its Urals crude for about USD 35 cheaper than the Brent global benchmark. The Kremlin is still getting a pretty good price for their oil export. The West need to go further to get Russian oil off the market quickly, since any delay will give market participants time to come up with creative ways to skirt the rules.
To make it harder for China, India, and other countries to keep importing Russian oil, EU intends to phase in a ban on insuring ships. Such a move may push China and India to find replacement barrels, the price of oil could easily go rocket high.
Therefore, Treasury Secretary Yellen suggested that using price caps to push down the price of Russian oil and depress Putin’s revenues while allowing more oil supply to reach the global market.
Cryptocurrency is having a terrible week. Still, long-term investors are really care about the steep drops in the value of digital currency and the temporarily halt of withdrawals in the exchanges.
Bitcoin, the world most valuable cryptocurrency, dropped nearly to USD 21,000 in recent days. it is sitting nearly 70% below its historical high of USD 68,000 per coin in November 2021. Ether, the second most valuable digital currency has lost about nearly 75% of its highs.
Due to the extreme market conditions, crypto exchanges like Binance and Celsius Network temporarily halted withdrawals and indicating that it would “take time” to reopen the exchanges.
In the meantime, Coinbase, the largest cryptocurrency exchange in the United States by trading volume announced it would lay off about 18% of its workforce and citing that “could lead to another crypto winter and could last for an extended period.”
However, the leaders in the cryptosphere are not really worried about the volatile market. They believe that the bear market in crypto is not the same as the bear market for stocks: the lows are more extreme, but then so are the highs. Crypto bear markets usually drew down 85 to 90% and then bounced back according to the past performance. Crypto market is naturally more volatile.
The markets in chaos: precious metals prices down, Bitcoin price hits lowest level since December 2020 and stocks plunges. Analysts warn of panic selling as investors are pre-reacting to the Federal Reserve’s interest rate hike on this Wednesday following a high inflation rate of the U.S.
The inflation is now expecting at annual pace of 8.6%. economists believe the Fed will need to get more aggressive to tame the inflation. The U.S. dollar reacted positively to the expected rate hike and goes stronger. In response to rising yields and a strong U.S. dollar, Gold saw a very sharp sell off as it plunged around USD 50 per oz on the day.
The precious metals are struggling as investors are still digesting inflation data and the looming economy downturn in China caused by the latest outbreak in Beijing and Shanghai. The latest lockdowns could lead to a much more extended period of supply chain issues and disruption.
Even though the market expects that the Fed will have an aggressive rate hike, but it is still not enough to get the inflation under control.
in the meantime, gold remains at risk of a more significant selloff. The support at USD 1,800 per ounce might not hold and we will see a retreat towards USD 1,750 per ounce.
