Gold Prices at 4-Month High as ETF Inflows Accelerate, Bitcoin Tumbles
Gold prices climbed to a four-month high, challenging psychological resistance of $ 1,900.A weaker US Dollar, inflation concerns and extreme volatility in cryptocurrencies have likely boosted the precious metal The world’s largest gold ETF saw accelerated inflows in May as prices rose, Chinese buyers returned.
Gold prices edged higher during Monday’s Asia-Pacific trade, reaching a four-month high of $ 1,887 before pulling back slightly. Stronger-than- expected US manufacturing and service PMI data released on Friday boosted the inflation outlook and thus bolstered the appeal of precious metals perceived as an inflation-hedge. Meanwhile, the DXY US Dollar index is hovering near a three-month low of 90.02, lending support to the yellow metal.
Extreme volatility in the Bitcoin-led cryptocurrencies encouraged traders to look again at gold as capital flows sought safety and stability.
Investors weighed uncertainties and risks in trading the digital tokens amid doubts surrounding Main Street adoption and regulatory headwinds. Gold offers an alternative to cryptocurrencies for investors who are looking for assets that are non-fiat and therefore cannot be diluted by central bank easing.
The return of Chinese buyers lent further support to bullion prices after regulators eased import quotas to meet domestic demand. Chinese non-monetary gold imports surged to111.9 tons in April, an almost three-fold rise from March’s 38.58 tons (chart below). Rising demand from China may help to offset a decline from India, which is struggling to recover from a wave of Covid-19 outbreaks.
China Non-Monetary Gold Total Imports – Monthly
Gold Price vs. GLD ETF Shares Outstanding – 12 Months
Gold Price – Daily Chart
US Dollar and Yen May Rise as Meme Stocks, Coins Warn of Market Excess
Signs ofspeculative mania in GME, DOGE, Bitcoin may foreshadow market implosion What are the four phenomena seemingly driving the rise in fringe, meme-linked assets? US Dollar, Japanese Yen may rise if market excess puts a premium on anti-risk havens
Signs of market excess began to emerge prior to the 1929 collapse in financial markets that helped trigger the Great Depression. An old industry adage- one that has become an embedded platitude in stories of financial bubbles – states, “When the shoeshine boy gives you stock tips, sell”.
This principle still appliesin the 21st century, though the occupation and medium of communication is different. TikTokers and other social media influencers are the new digital canaries in the financial coal mine. Fringe assets with no clear-cut fundamental value have surgedduring the pandemic in large part thanks to their encouragement.
These assets include – but are certainly not limited to – shares of GameStop, Bitcoin, and its absurdist descendant Dogecoin. Their spectacular rise can arguably be attributed to four phenomena [not in order of relevance]:
1.Gamification of trading
2.Growing interest in trading among millennials
3.“Memeification” of securities
4.Ultra-loose credit conditions
#1 Gamification of Stocks
Trading apps like Robinhood have helped to bring a younger demographic of traders to the financial fore. While this is not problematic in and of itself, newer users are often less experienced. When combined with user-optimized interfaces that make it easier to trade, this has led to the general gamification of stocks and trading (i.e. the adoption of a video gaming-like approach to platforms and services as well as to trading itself).
#2 Growing Interest Among Millennials Engaged in Trading
While retail trading was previously associated with an older and more risk-averse demographic, the new paradigm has come to feel more like a game. The influx of younger traders who grew up in a more digital world with these new trading instruments have begun to change the landscape and nature of trading as a whole.
#3 Memeification of Securities
The rush of younger traders has also brought the social zeitgeist with it. Memes are a key feature of this phenomenon. When memes become associated with or take on the form of an asset – Dogecoin is a prime example – the familiarity that this confers, combined with a trading platform presenting investing in a game-like way, has helped push prices higher.
#4 Ultra-Loose Credit Conditions
When the pandemic hit, central banks all over the world turned up the credit taps full blast in an effort to avoid a credit squeeze and implosion of the global financial system. While the tsunami of liquidity was met with open arms as a bulwark against credit stress, it has also allowed for rampant speculation. At the end of 2020, the tech-leaning Nasdaq was up over 40 percent and the S&P 500 around 15 percent.
However, these returns pale in comparison to some of the outliers, as introduced above. Besides those already mentioned, this also includes shares of Tesla, whose iconic CEO Elon Musk has helped propel the stock to astronomical heights.
Below we will explore four rather strange assets that have attracted acute attention in mainstream media after initially starting off on the social/financial periphery.
DOGECOIN: WHO LET THE DOGE OUT?
Dogecoin was created on December 6, 2013 as a joke using the famous Shiba Inu “Doge” meme as the face of the token. For many years it remained a financial pariah until meme culture began to permeate more mainstream conversations and began to be promoted by celebrities and influencers. It’s growing popularity came with the new wave of younger, meme-friendly traders.
Between January 1 and May 7 of this year, Dogecoin rose by a whopping 13,263.9%. Tesla’s Musk compounded the cryptocurrency’s gains after tweeting “Doge” and “Dogecoin is the people’s crypto”, sending the digital token up over 60% in one day. What started as a joke has led to a market cap of close to $100 billion and wider-spread adoption in retail trade.
Dogecoin – One Year Chart
BITCOIN: ANOTHER ONE BITES THE BUST?
Bitcoin rose by an astounding 117 percent from the beginning of 2021 through mid-April, peaking at over $64,000 per BTC. The rally reflects wider-spread adoption, particularly among those with a strong social media presence like Mr. Musk. It should be noted: he alone is not responsible for Bitcoin’s rally, but he unquestionably played a readily-apparent role.
Bitcoin – Weekly Chart
GAMESTOP: STONKS ONLY GO UP
Gamestop (GME) became famous after what was once described as “the most shorted stock in financial markets” famously turned around and rose over 2,200 percent in less than two weeks. The subreddit thread r/wallstreetbets was the social catalyst, with a redditor named “Roaring Kitty” subsequently testifying before Congress about the stock’s astounding spike.
Gamestop – Monthly Chart
US DOLLAR, JAPANESE YEN MAY RISE IF MEME ASSET FRENZY FIZZLES
The US Dollar and Japanese Yen may be the preferred choice for volatility-shocked investors who at the time may be prioritizing liquidity over returns. Recent bouts of extreme market turbulence – like in 2008 and 2020 – have seen JPY and USD rise against a basket of G10 and EM FX counterparts.
While past performance is not indicative of future results, history sure does seem to rhyme. The Yen and Dollar have a tendency to rally even during shallower bouts of uncertainty and brief spikes of volatility. More of the same is probably in the cards if a collapse in meme assets ripples out into the broader financial markets.
Crude oil prices climbed amid strong US data, ebbing Covid-19 cases around the globe
US-Iran nuclear talks remain challenging, easing fears about an influx of Iranian oil in the near term WTI has found some support near $62.20 – the 161.8% Fibonacci extension
Crude oil prices traded slightly higher during the Asia-Pacific mid-day session after surging 3.1% on Friday. A sting of upbeat manufacturing and service PMI readings bolstered the outlook for energy demand in the West as Covid-related restrictions are eased. The arrival of the summer driving season in the US and Europe, alongside a steady economic recovery in China, may lend further support to oil prices.
The flash Markit US Composite PMI index came in at 68.1, a big leap forward from April’s reading of 63.5. This points to a full-blown recovery in the US economy as demand for goods and services soars at an unprecedented pace.the Euro area also registered upbeat PMI readings, with expansion in the service sector quickening in early May. This painted a rosy picture of economic recovery as vaccine rollouts helped to heal the pandemic’s impact.
Concerns surrounding higher Iranian oil output ebbed towards the end of last week after a US Department of State representative said that “many challenges” remain on the road to reinstate the Joint Comprehensive Plan of Action (JCPOA). A potential removal of economic sanctions on Iran, including limiting its oil exports, may pave the way for injecting over 2 million bpd of crude supply into the market. This may disrupt a fragile supply-demand relationship as OPEC+ calibrates a gradual unwinding of production cuts in the months to come. But now it looks like a concrete nuclear deal remains elusive in the near term, especially considering that Iran is heading towards a presidential election on June 18th.
Technically, WTI failed to breach a key resistance level at around 66.50 (the 200% Fibonacci extension) for a third attempt. This resulted in a bearish “Double Top” chart pattern that may hinder further upside potential. Prices have also breached below an “Ascending Channel” as highlighted on the chart below, suggesting that near-term trend has likely turned bearish. An immediate support can be found at 62.20 – the 161.8% Fibonacci extension.
The MACD indicator formed a bearish crossover and trended lower, suggesting that bearish momentum is dominating.
WTI Crude Oil Price – Daily Chart
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