Gold Skyrockets 2% and Stocks Wobble Amid Economic Fears

Gold shines as the price spikes more than 2% within yesterday’s trading session and renews its 2023 price highs. Gold's price has reached its highest point since March 6th, 2022. The price of Gold has increased in value for more than one reason which we will evaluate within the Gold analysis below. For example, yesterday’s JOLTs data was at its lowest since 2021, triggering a weaker Dollar and lower investor sentiment. 

The US Dollar significantly declined during yesterday’s trading session dropping from 102.27 to under 101.50. The index came under pressure from a strong selloff as the market read the latest economic data indicating an economic slowdown. The economy is displaying a weaker employment sector for the first time in more than a year. Investors are contemplating whether the weaker data may prompt the Federal Reserve to consider not hiking at their next rate meeting. However, this will still broadly fall to the Non-Farm Payroll and the Consumer Price Index. 

If the Federal Reserve settles on a “hold”, they will not be the first. This month the Reserve Bank of Australia confirmed they would be one of the first central banks to end their interest rate cycle. The US and Australian Dollars are declining mainly due to their expected dovish stance. Within the currency market, the best-performing currencies from the past 2-weeks remain the New Zealand Dollar, Pound, and Euro. The Reserve Bank of New Zealand unexpectedly hiked more than previously expected. The RBNZ increased their interest rate by 50 basis points despite the country heading towards a recession and property prices dropping 10%. Nonetheless, the price of the New Zealand Dollar rose after the announcement. 

XAU/USD

The price of Gold is now climbing for a third consecutive day and is crossing onto a new price high this morning. Technical analysis is currently pointing towards prices ranging between $1,990 and $2,070. Trend indicators such as regression channels, trading clouds, moving averages, and Parabolic SAR point toward an upward trend. Investors should also note that the price is now overbought on most Oscillators. 

XAU/USD 1-Hour Chart on April 5th 

Why have investors turned to Gold?

Investors and economists expect inflation over the next 3-6 months to become “stickier” or may even slightly rise. In addition to inflation, most economists expect a minor recession in the year's second half. As a result, investors required an alternative to hedge against inflation as the Dollar becomes a riskier and lower-yielding asset, mainly due to the risks of recession and possibly lower interest rates. For this reason, investors turn to the traditional safe haven asset and hedge against inflation, which is Gold. 

As we analyze the economic data released only in the past few days, the recession risks are increasing as the monetary policy becomes more restrictive. The latest ISM Manufacturing PMI data was significantly lower than markets expected and lower than the previous months. In addition, the JOLTS Job Openings read only 9.93 million, which is 560,000 vacancies lower than what economists expected. 

Even though economic data points towards a recession or some sought of economic retraction, members of the Federal Open Market Committee members are still advising a Fund Rate above 5%. St Louis President James Bullard and Mrs. Mester report that the central bank is not considering interest rate pivots. Mester advises that the fund rate must remain 5% or slightly higher. Mr. Bullard told markets during an interview with Bloomberg that most of the committee wants to see the Fund Rate at 5.25%, while he believes it should be at 5.5%. A higher Fund Rate can pressure the price of Gold, but if the Fed does not increase rates or even consider a pivot in the coming months, the price of Gold may maintain momentum. 

The US Commodity Futures Trading Commission’s report confirms the number of positions speculating a decline continues to outnumber long positions. 

NASDAQ

The price was pressured over the past 24 hours due to significantly lower investor confidence and poor economic data. The price of the NASDAQ was down 0.50% over the past 24 hours but is experiencing a weaker decline compared to other US-based indices. Currently, the price only indicates a retracement and has not yet signaled a downward trend. However, indicators may change if the asset maintains momentum below $13,032. 

NASDAQ 30-Minute Chart on April 5th 

As the NASDAQ is a weighted index, some companies strongly influence the price. For example, Tesla is the fifth highest weighted stock within the NASDAQ. Economists indicate the company's performance is solid despite a weaker economy, high oil prices, and higher interest rates. Analysts expect strong global sales of electric vehicles in the first quarter of 2023. The management announced the deliveries of 422,875 cars during this period, 4% more than the last quarter in 2022. 

The top-weighted stocks primarily influence the price of the NASDAQ during the upcoming earning season. These companies include Microsoft, Apple, Amazon, Nvidia, and Tesla, with Microsoft holding the highest weight. Investors over the next week, investors will be concentrating on the US employment data and inflation data. Higher inflation and weaker employment can pressure the NASDAQ further.

Summary:

• Gold’s price spiked more than 2% and reached its highest point since March 6th, 2022.
• The US Dollar came under pressure as the latest economic data indicate a potential economic slowdown. 
• Investors turn to Gold to hedge against inflation as the risks of recession increase. 
• The NASDAQ declines as investors' sentiment declines. Economists expect Tesla to perform well during the upcoming earnings report mainly due to higher demand in China.