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Falling gold and oil: how the dollar reacts

29 June 2021

On Tuesday morning, oil began to decline amid the rapidly spreading Delta virus, which darkened the outlook for fuel demand. Investors are looking forward to a meeting of the OPEC+ later this week. Brent futures fell 0.38% to $73.86, while WTI contracts lost 0.32% to $72.68. In June, oil rose by about 10%, supported by the recovery of the largest economies, including the United States and China.

At the same time, the UK reported the highest daily increase in cases of infection with coronavirus in the past 5 months. Hong Kong, Spain, and Portugal have banned all passenger flights from the United Kingdom to limit the spread of the Delta mutation. Also, in the Australian cities of Sydney, Darwin, Perth, and Brisbane, local lockdowns were reintroduced.

As for the supply on the oil market, OPEC+ is expected to increase production by 500K to 1M barrels per day, which will happen in August. On Tuesday morning, gold futures were down 0.37% to $1,774.15, confirming June will be the worst month for this precious metal since 2016. Now, the asset continues to trade below the 100-day moving average. The quotes are under pressure from two factors at once: the strengthening of the dollar and fears that the US Federal Reserve will tighten monetary policy earlier than expected.

The dollar, which is usually inversely correlated with gold, is doing the same this time around and is also starting to weaken as the rate hike remains unclear. The dollar index continued its pullback from the high of 92.408, recorded on June 18th. However, the decline was short-lived: right now, the DXY is already gaining a little (0.08%) and is trading around 91.948.

Investors are awaiting the Nonfarm Payrolls and the Conference Board (CB) Consumer Confidence Index on Friday. On Thursday, it makes sense to pay attention to the Manufacturing Purchasing Managers Index (PMI) by the Institute for Supply Management (ISM).

The data is forecast to be favourable, helping the dollar to moderately rise against the euro, with 690K jobs expected to grow in June from 559K in May. The unemployment rate is likely to fix at 5.7%, up from 5.8% in the previous month. Most likely, this week, gold will resume its downward trend: companies inclined to invest capital in risky assets continue to assess the likelihood of tightening monetary conditions from the Fed. However, there is room for optimism: if the actions of the American regulator are already included in prices, then gold is able to find support at $1,775. Other metals are also declining: silver lost 0.4%, palladium lost 0.2%, and platinum lost 0.1%.



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