Gold prices drop ahead of U.S. inflation data

 

Investors were enjoying last week that sent Wall Street sky high. The rally in the U.S. was nothing short of remarkable, but still, there are fears regarding global growth, and the Covid Delta variant. With these in mind, it is no wonder that many are raising their doubts about inflation.

Traders will be keeping a keen eye on the market this week. Gold prices are dropping on Monday on continuing concerns around the pandemic, with investors closely monitoring Tuesday’s consumer price index data and Powell’s speech before Congress on Wednesday to get further insight on the Central Bank’s policy tightening. Gold futures were down 0.4% to $1,803.35 by 12:38 AM ET in Asia.

 

 

Is inflation imminent?

U.S. core consumer price index (CPI) for June is due on Tuesday. There are a lot of questions regarding the recovery of the U.S. economy. Right now, shortages of materials and difficulties in hiring are holding it back. These elements are one of the key drivers of inflation according to the U.S. Federal Reserve. Additionally, the news surge in the coronavirus variants paired with lacking access to vaccines in developing countries is threatening the global economic recovery.

Lack of demand

Last week saw a decreased demand for physical gold in India as traders were discouraged by the rise in price. While the demand was slightly improving after the government eased on the Covid restrictions, the sudden jump in price was too overwhelming for traders. Additionally, data from the U.S. Commodity Futures Trading Commission also noted that speculators raised their net long positions in COMEX gold.

Institutional impact

U.S. Federal Reserve Chair Jerome Powel will testify before the banking committee this week. His report will be closely inspected for any clues regarding the timeline for asset tapering. Over in Europe, the European Central Bank is expected to update its guidance on the next monetary policy in the following days. U.K.’s Prudential Regulatory Authority declared their decision “to amend our approach to precious metal holdings related to deposit-taking and clearing activities”. This could mean that the banks who trade gold could apply for an exception from tighter capital rules expected to take place from January 2022.

Gold traders are facing a really important week ahead with a lot of unknown parameters. While the impact of the evolving coronavirus is difficult to predict, investors will be looking to make the most out of this weeks’ events in the U.S. Trading around it could prove challenging, but the overall volatility of the market is bound to intrigue a lot of traders. Gold has always been and still remains to be one of the most sought after assets due to its intrinsic values. Traditionally, whenever the value of paper investments such as bonds and stocks goes down, there is an increase in the value of gold. Its price can be volatile in the short term, but it has always maintained its value over the long term.

 

Meta Description: Gold prices are quickly dropping due to big upcoming market events. Traders will be keeping a close eye to U.S. inflation data.

Monday Morning Surprise: The Dollar Rises in European and Asian Market

 

The global economic market is starting to recover from this pandemic although investors still fear a slowdown. From the beginning of July, the U.S. Dollar was very unstable in European and Asian markets and finally, during the last week, the dollar had some strong gains. So, it’s more than clear now that the U.S. dollar remained its status of a safe currency despite everything that happened during the last year.

Although all those changes started last week, this Monday was the day when most of the thighs changed. Especially in the Asian market, or to be more specific — Japan. According to the U.S. Dollar Index that is used for tracking the dollar against all other currencies, the market opened slightly higher (92.142) than the previous closing (92.116) and by 08:45 AM it inched up to 92.245.

The Biggest Change

The biggest change definitely happened in the Asian market. In just a few days, the price of the U.S. Dollar rose compared to the Japanese Yen. If we go back to the last week and take the Thursday 8th as an example, the price of one dollar was 109.78 and today it’s 110.08. So, the USD/JPY pair rose to 0.01% this day.

Of course, this rise didn’t happen all of a sudden. Some things occurred and had a direct influence on the rise of the dollar today. According to some investors, the main thing that caused the change was the growth of Japan’s core machinery orders. Compared to the last year, core machinery orders rose by 12.2 percent and if we take a month-on-month analysis that percentage is 7.8, which is much better than expected. Of course, this is not the only thing that had an impact on today’s change, but it’s the one that is worth mentioning.

Now, it’s time to move on from Asia to other parts of the world, since the USD has risen all across the globe. The USD/GBP pair opened for 0.7192 and until 10:45 it got up to 0.7214. In the European market, the dollar went up to 0.8481 and that’s exactly what gained the most attention among investors.

The Focus on the U.S. Inflation

The main focus now is turned to U.S. inflation. We still need to wait for the U.S. core consumer price index (CPI) to be released (scheduled for July 13, 2021, at 8:30 A.M. Eastern Time) to see what will happen next, but according to Shinichiro Kadota (Barclays senior FX strategist), if the data is strong enough, we could expect to see Fed’s current forecast of 2023. But the thing is, if the data shows that inflation is more persistent than experts predicted, the Federal Reserve will have to boost the dollar even more by asset tapering.

As you can see, the dollar found its way to the top once again. The growth is slow but steady and even if we compare it to the cryptocurrencies, there are some small movements. Of course, this doesn’t mean that by next Monday those movements won’t be big ones. Forex is an unpredictable market and it’s yet to be seen what will happen to the U.S. dollar and will this new Delta variant of COVID-19 influence some new changes.

China Hits Back at the U.S. “Unreasonable Suppression” Amid Economic Blacklist

 

The People’s Republic of China is hitting back after the United States blacklisted over two dozen Chinese entities within its economic trade deal. The Ministry of Commerce has since claimed that these entities have committed serious breaches of international and economic trade rules, as well as some harsher accusations. The US Department of Commerce is claiming that these companies have shown a serious violation of human rights and abuses. These actions include repression, mass detention, and high-tech surveillance of several of the Chinese minority Muslim groups.

While Beijing is denying these allegations and hitting back criticizing the US’ “unreasonable suppression”, the US is claiming that these violations have been detected against the Muslim minorities including Uyghurs, Kazakhs, and other minority groups in the Xinjiang Uyghur Autonomous Region. This region has historically been home to some of the largest and most diverse minority groups in China, as well as the main point of access to the famous ancient Silk Road, a trade route that connected China with the Middle East.

 

What Happens Now?

The entities that were blacklisted by the United States will not be able to engage in the economic trade with this country, which significantly damages its national economy and further relations with other countries. The scrutiny that follows this situation usually makes it even harder for the entities and companies to regain the commerce licenses by the US Department of Commerce. They are required to submit their requests again to this regulatory body in order to become approved and removed from the blacklist.

Aside from this, another 5 entities were added to the US economic blacklist due to relations with the Chinese military modernization programs. This would not be a violation if it weren’t for the proof that these companies were exporting or planning to export items that were already sanctioned by the US. The exact items are not known, but they are said to be tied to laser and battle management system improvement and development.

The Trump Administration Ties

Back in 2019 under the administration of US President Donald Trump, the US Department of Commerce has targeted over 20 Chinese public security companies and bureaus. They were investigated based on the allegations of mistreatment of the Chinese Muslim minorities, and they include some of the biggest names including the facial recognition technology giants SenseTime Group Ltd and Megvii Technology Ltd.

The infamous trade war that Trump’s administration has imposed on China has included several years of tough economic sanctions, blacklistings, and other forms of suppression of Chinese imports. The sanctions rose every few months, and they are said to have severely damaged the economies of both countries, not to mention their geopolitical relations. Although the sanctions have since eased, the latest moves from the Biden administration are showing that the Chinese import still has a long way to go to become updated with the latest requirements that the global economy is imposing.

Currently, the US Department of Commerce has added 34 companies to its blacklist regarding economic trade and import/export relations, including a few entities from Russia and Iran as well. The official statement from the Department is claiming that it is firm in its decision to condemn any violations of human rights in all parts of the world, especially if they are collateral damage to a country’s economic growth and development. This latest move by the US was made after the US Department of Commerce previously added five Chinese companies to its blacklist after allegations came to light about forced labor in the western region of China.

 

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