Can gold stabilize after the recent drop?

Markets had another wild ride this week, but indices are on track to end it pretty much where it started.

There’s been a lot to digest this week, especially from the companies themselves, with big tech focusing on profits. We continue to see decent reports, albeit with a few minor hiccups along the way.

Amazon was the latest to catch Wall Street off guard, reporting its first loss since 2015 amid a host of challenges facing the company. There were the usual report highlights like cloud and advertising companies – although the latter fell a little short of expectations – but like many others the company is struggling to adapt to post-pandemic life after expanding massively over the past two years.

It feels like investors only had one eye on the Fed meeting next week, which may explain why we haven’t seen a big lasting move anyway. The dollar pared its gains today, but it has been flying this week and it’s hard to see a strong case for that to reverse significantly. I can’t imagine the Fed is going to tone down its hawkish rhetoric next week.

The EU’s response to Russia cutting off gas supplies to Poland and Bulgaria has not been as unified as we have seen in recent months. There has been a desperate scramble to determine which companies can comply with sanctions while keeping the gas flowing, which the Kremlin will be happy to witness.

Rising energy prices are a major driver of inflation in the Eurozone and this is unlikely to change any time soon. Inflation hit a new high of 7.5% in April, while the core measure hit 3.5%, beating expectations. This will increase the pressure on the ECB to tighten this year, even though it appears to be peaking. The market expects multiple rate hikes this year, which the central bank has pushed back against. The appointment at the beginning of June is now huge. No room for ambiguity on the part of Christine Lagarde this time.

Oil climbs as EU nears Russian oil embargo

It looks like the EU is getting closer to an oil embargo which some say is overdue given Russia’s aggression in Ukraine. Naturally, the devil will be in the details, but the moves we’re seeing in crude prices suggest that the fine print won’t live up to the headlines. A gradual approach while remaining positive will not suffice. But this is the impasse the EU has left itself in after years of allowing itself to become so dependent on Russia.

In the end, the oil market remains in consolidation and the range is tightening which could make for a few interesting weeks. A break out of this choppy range could be quite explosive and despite the impact of Chinese lockdowns, the risks remain tilted to the upside. Especially if the EU manages to respect an immediate embargo.

Can Gold Stabilize After the Recent Plunge?

It’s been a terrible two weeks for gold since it nearly breached $2,000 for the first time in over a month. The dollar’s rally has been relentless and has been a real drag on the yellow metal. Which begs the question, is anything going to stop the dollar in the near term? And if not, what does this mean for gold.

Gold will continue to be a safe haven and a hedge against inflation, so I don’t see the recent rate of decline continuing, even if the dollar remains strong. That said, there really isn’t a bullish case for the yellow metal if the dollar continues to climb. Can it stabilize around these levels? It is doing a good job at the moment, although strongly helped by a small correction in the dollar.

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