- Volatility across most markets remains low as both the US and Canadian markets are not trading due to bank holidays.
- The price of Gold trades higher, continuing the bullish trend from Thursday and Friday. However, will investors continue to purchase gold while inflation continues to remain sticky?
- The US Dollar remains unchanged but is struggling to maintain bullish momentum after Friday’s producer inflation data.
- Bitcoin rises 1.30% and continues to test the previous resistance level. However, the overall cryptocurrency market capitalization and Bitcoin’s market share falls.
Bitcoin
The price of Bitcoin is trading slightly higher on Monday and is not showing any major bearish momentum or indications. The cryptocurrency has risen in value for 4 consecutive weeks and will be in the spotlight over the next 24 hours as China confirms their monetary policy. Analysts expect the 1-Yr Loan Rate to remain unchanged but for the 5-Yr to fall 10 basis points. The bullish price movement for Bitcoin has been largely due to the weakening Chinese policy and further dovishness can support Bitcoin further.
According to the latest reports from economists and researchers, the asset has seen an increase in activity from institutional investors. According to experts at the analytical company CoinShares, over the past week, the net fund inflow into the new exchange-traded instruments amounted to $1.1 Billion, which is considerably high. On Wednesday, spot Bitcoin ETF inflow reached $651 million, the second highest since the start of the project.
The upcoming halving also provides support for prices as mining companies begin to hold onto mined tokens, creating a supply shortage in the market. Furthermore, when looking at technical analysis, the price also continues to maintain medium-longer term buy signals. The asset trades above the 75-bar EMA, above the VWAP and above the neutral on the RSI. However, if the asset is going to decline, indicators point to a retracement declining to $50,260.
XAUUSD
The price of Gold has risen in value primarily due to the decline in the Dollar, but analysts continue to advise the Dollar can rise due to inflation. Trading today has been limited due to the bank holiday, but the Dollar has maintained its value. Investors will be eager to see how the Dollar reacts tomorrow as more orders are entered.
The producer price index increased by 0.3% and by 0.9% over 12-months, which was higher than the predicted 0.1% and 0.6%. The figures were also significantly higher than the previous month which was a concern. The core indicator for the same period accelerated by 0.5% (monthly) and 2.0% (yearly), exceeding estimates. Now both consumer and producer inflation are higher than previous expectations. The only other inflation release due is the PCE Core Price Index next Thursday. If the PCE Price Index is higher than expectations, investors will most definitely push back a cut to the summer months.
The PCE Core Price Index is believed by most investors to be the most monitored by the Fed alongside the Consumer Inflation Rate. So far this week, the Dollar potentially may continue to witness support from the higher inflation readings. This week, the Dollar will be influenced by the PMI on Thursday and Wednesday’s FOMC Meeting Minutes. If the PMI is higher than expectations, and the Meeting Minutes are generally hawkish, Gold may see another decline.
When looking at the medium-term charts, such as the two hour and three-hour charts, XAUUSD may see sell signals materialize if the price falls below $2,011.
On a last note, last week, buyers opened 5,547,000 positions in the asset, while sellers reduced their positions by 21,370,000.
Michalis Efthymiou
Market Analyst
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Gold is a precious metal that has been coveted by humans for centuries. It’s not only valued for its aesthetic appeal, but also for its use as a store of wealth and currency. In recent years, the demand for gold has soared, and economists are taking note. With inflation concerns on the rise, gold is becoming an increasingly attractive option for investors and traders alike. In this article, we will delve into the potential of gold as an investment and its impact on the current trade market. So, grab your virtual pickaxes and let’s unlock the potential of gold together!
Why Gold is a Valuable Asset
Before we dive into the current state of the gold market, let’s first understand why gold is seen as a valuable asset. Gold is a physical asset with intrinsic value, unlike paper currencies that can be printed endlessly. It is also a finite resource, meaning that it cannot be reproduced or created artificially. This gives it an inherent rarity that makes it attractive to investors. Additionally, gold has a long history of maintaining its value and serving as a hedge against economic and political uncertainties.
Economist’s Concerns About Inflation and the Impact on Gold
Inflation is the general increase in prices of goods and services in an economy. When inflation occurs, the purchasing power of a currency decreases. With the massive stimulus packages and low-interest rates implemented by governments worldwide to counter the economic downturn caused by the pandemic, there are growing concerns among economists that inflation may soon follow. The fear is that the abundance of cash in circulation and the potential rise in consumer demand could lead to a surge in prices.
So, why is inflation a concern for gold? As mentioned earlier, gold has a reputation for maintaining its value, and this holds true during periods of inflation. In fact, gold is considered a hedge against inflation, as its value tends to rise as the purchasing power of traditional currencies decreases. This makes gold an attractive investment option for investors looking to protect their wealth from the effects of inflation. The increased demand for gold amid inflation fears has led to a surge in its prices, making it an even more attractive investment option.
The Role of Central Banks
Central banks play a significant role in influencing the gold market. They hold large amounts of gold as part of their foreign exchange reserves and can impact its price through their buying and selling activities. In recent years, central banks have been buying more gold as a way to diversify their foreign reserves and reduce their reliance on the US dollar. In 2020, central banks bought a record-breaking 650 tonnes of gold, which accounted for 10% of the global demand. This trend is expected to continue in 2021, further boosting the demand for gold and its price.
The Trade Excitement Surrounding Gold
The rise in demand for gold has not only been fueled by inflation concerns, but also by the excitement in the trade market. In times of economic uncertainty, traders tend to flock towards safe-haven assets like gold, driving up its prices. This was evident in the first half of 2020, when the gold market saw record-breaking levels of trading volumes and inflows from exchange-traded funds (ETFs). Even as economies start to recover from the pandemic, the trade excitement around gold continues as investors seek to diversify their portfolios and protect their assets.
Practical Tips for Investing in Gold
Now that we have explored the potential of gold, let’s look at some practical tips for those looking to invest in this precious metal.
1. Consider Investing Through ETFs: Exchange-traded funds offer an easy and accessible way to invest in gold, as they track the price of gold and can be traded just like stocks. This negates the need to physically buy and store gold.
2. Research Gold Mining Companies: Another option is to invest in gold mining companies. However, it’s vital to research and choose companies that have a good track record and strong financial standing.
3. Stay Updated on Market Trends: As with any investment, staying informed and updated on market trends is crucial. Keep an eye on inflation rates, central bank activities, and trade market developments to make informed investment decisions.
In Conclusion
The potential of gold is undeniable, and with the current economic landscape, it’s on the path to even greater heights. As we have seen, gold serves as a hedge against inflation and economic uncertainty, making it a smart investment option for traders and investors. However, like any investment, it’s essential to do your research and stay updated on market trends before making any decisions. With careful planning and patience, you too can unlock the potential of gold and reap its benefits.