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Gold back at historic highs: possible Fed cuts driving the boom

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Gold back at historic highs: possible Fed cuts driving the boom

The performance of the financial markets, gold at new historic highs above 2,250 dollars per ounce

The second quarter of 2024 has begun, marked by better-than-expected American data which, although they do not yet represent the certainty of a postponement of the long-awaited rate cut, nevertheless signal a situation in which the Fed could possibly extend the timeframe. Wall Street yesterday closed in the red in a market that however remains largely risk appetite, with the sole exception of the increase in US 10-year yields, which rose above 4.3%.

However, the Fed’s preferred inflation indicators have not changed the expected scenario, at least for now, with Chairman Powell saying that February data was in line with expectations. The core PCE rose 0.3%, below January’s upwardly revised 0.4% increase, and forecast 0.4% and the core rate fell to 0.3% from a 0 .5% revised upwards in January, in line with expectations. However, yesterday afternoon, the US ISM Manufacturing PMI increased to 50.3 in March 2023, compared to 47.8 in February, beating the market forecast of 48.4. This marked the first expansion of the manufacturing sector after 16 months of contraction. New orders increased to 51.4 from 49.2 and output rose to 54.6 from 48.4. However, the order book remained contracting at 46.3, the same as February. In short, these data seem to highlight some doubts and in the face of a possible correction of the price lists, we could witness the rise of the dollar and as an investment asset (because we remain at risk off if we observe the risk indices), both as a safe haven asset in a corrective moment of the price lists, which perhaps seems necessary.

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On exchange rates, the dollar’s reaction to the manufacturing PMI data made itself felt with theEurUsd dropped to 1.0730 with a chance to attack 1.0690-00 key support area. The Cable also broke 1.2600 and returned to the 1.2550 level, the first short-term support level which could be followed by the 1.2520 area. UsdJpy is back close to 152, waiting for some signal from the BoJ which for now however is missing. In short, a dollar that remains strong against the main competing currencies and little hope, for now, of seeing a reversal, but perhaps only some corrections.

The Turkish lira reacts after the new historical low

The Turkish lira, after seeing new historic lows against the dollar at 32.50, corrected, returning to the 32.00 area after local lessons, in which President Erdogan’s AKP party suffered a significant defeat, losing in large cities such as Istanbul and Ankara. There were fears that this could lead to a shift from recent orthodox economic policies to a more expansionary fiscal policy, but President Erdogan accepted defeat and promised that his efforts to contain inflation would bear fruit this year . The annual inflation rate in Türkiye rose to 67.07% in February 2024, the highest level since November 2022. Interest rates have risen to 50%. To protect their savings from inflation, many Turks are buying gold, and other assets tied to the US dollar.

China’s manufacturing sector improves

The Caixin China General Manufacturing PMI increased to 51.1 in March 2024 from 50.9 in the previous month, beating market estimates of 51. It was the fifth consecutive month of growth in industrial activity and the fastest pace since February 2023, supported by higher new orders from both to national and foreign level. Meanwhile, employment fell again, indicating that companies were cautious about hiring in an effort to keep costs down.

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As for inflation, input prices fell for the first time since July, albeit only marginally, due to lower raw material costs. As a result, companies reduced selling prices for the third consecutive month and the most in eight months, thanks to efforts to stimulate new demand. UsdChn attacking the resistances, at 7.2820, with the possibility of returning to the highs of 7.3650.

New all-time highs for gold

Gold rose above $2,250 an ounce on Monday, extending its rally and finding a new all-time high at $2,267 an ounce, driven by massive purchases linked to optimism regarding possible Fed cuts as early as June, and with lower interest rates the opportunity cost of holding bullion would be reduced, increasing its investment value. The correlation with the greenback, usually inverse, has reversed, and purchases of gold in dollars seem to offer excellent returns also and above all due to the increased value of the greenback.

The Reserve Bank of Australia held the cash rate at 4.35% at its March meeting, as widely expected. Tuesday’s decision came amid signs of slowing economic growth after a total rate increase of 425 basis points over the past two years. Meanwhile, inflation continued to decline amid moderation in commodity prices. The outlook seems to favor a slowdown in the coming months.

Rba minute and today’s data

On the data front, today is an interesting day, with data relating to the English property market, followed by Swiss retail sales and manufacturing PMI. From 9.00 onwards, SMEs for Spain, Italy, France, Germany and the Eurozone. At 10.30am English manufacturing PMI, and data on German inflation. In the afternoon, orders to US industry together with the Jolts Openings, which is the monthly report on job offers in commercial, industrial and office areas in the United States. Bowman, Williams, and Mester of the Fed will then speak.

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*Senior Analyst di ActivTrades

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