Risk on, Dollar Down And Euro up, Gold Doesn’t Give up, Why?
Markets are trading with optimism on Monday as US investors return from the Fourth of July long weekend with that renewed bullish sentiment that is naturally intrinsic of the American people.
A set of good unemployment data last week, better than expected PMI and ISM numbers, and last week's rally are the best friend of Wall Street's uptrend right now.
Besides, the news about the first Warren Buffett's Berkshire acquisition on the framework of market turmoil this year with Dominion Energy, and Uber purchasing food-delivery app Postmates in a deal worth $2.65 billion are fueling the bullish sentiment.
As Jeff Saut, chief investment strategist at Capital Wealth Planning said to CNBC this morning, "the economy is doing a lot better than most of the economists think." So, the market is buying it.
We may stall here for a while into the fall, into September, October, November, but I think you're going to get a rocket ship coming in the fall of this year...I think the S&P 500 is going to trade above 4,000.
Mmm, a bit high, but possible, especially in this kind of market with huge swings.
However, not all pieces of news are great for the United States. The country is again the focus of the COVID-19 pandemic with increasing cases in most of the states of the union. Especially, Texas and Florida seem out of control, and no crucial measures have been taken in recent days.
Dollar Down And Euro Takes Advantage
In this framework, the US dollar is trading under pressure on Monday. The DXY is currently moving at 96.65, which is 0.50 percent on the day. Extending declines for the second session in a row and driving the unit well below June 30 highs at 97.80.
On the other hand, the euro is taking advantage of the situation with the EUR/USD rallying on the day and trading at highs since June 23.
Currently, the EUR/USD is being exchanged at 1.1353, which is 0.80 percent positive on the day. The pair is now focused on the 1.1350 resistance. The single currency is also taking advantage of rumors about a new and big stimulus plan in the United States. Also, from risk appetite.
However, in that situation, the typical outcome would be a declining gold, but it is not happening. Why?
Gold Doesn't Give up as it Provides High Self Confidence
Investors want to believe that everything is going fine and recent economic data has been proof that the economy was not that bad as previously anticipated, at least in the headlines.
However, COVID-19 advance and the bottom line of economic indicators suggest that the worst is not yet behind us. So, investors want to bet on risky assets, but they are reluctant to sell their strategic gold positions.
Remember that beyond being a safe haven, gold is a safe investment. Most of all experts say that the XAU/USD will go up in the middle to long term, and people don't want to miss the hype.
Gold is currently trading at intraday highs around $1,786.86, which is 0.61 percent positive on the day, but the most significant thing is that the metal is near the July 1 high at $1,790.00, which is also the maximum level traded since 2012 for the XAU/USD.
Kitco's analyst Jim Wyckoff said in a recent note:
Technically, the gold bulls have the solid overall near-term technical advantage, "Bulls' next upside price objective is to produce a close in August futures above solid resistance at this week's high of $1,807.50. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,754.00.
We can not forget that we are in an election year in the United States and the leading candidate is Joe Biden. Wall Street is betting on a Democratic president but a Republican House.
However, the COVID-19 developments are pushing incumbent Donald Trump in a hard position. If Trump is not able to revert the situation, and it turns even worse for the Republican party, Wall Street could face a hard time digesting a Democratic landslide victory.
And that means risk aversion again — another gold bullish situation.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.