(Kitco News) Gold flirted with the $2,000 an ounce on Monday, led by safe-haven demand following a long weekend. Bitcoin and Ethereum failed to move higher, with the former trading below $40,000 and the latter below $3,000.
The risk-off sentiment drove more investors toward gold despite downward pressure from rising U.S dollar and U.S. Treasury yields.
Russia’s invasion of Ukraine was once again top of mind at the beginning of the week as Ukrainian officials said Russia looked to have begun a new offensive in the east of the country.
“This morning, along almost the entire front line of Donetsk, Luhansk and Kharkiv regions, the occupiers attempted to break through our defences,” Ukraine’s Security Council Secretary Oleksiy Danilov said Monday.
Ukraine also said that seven people were killed in a Russian missile attack in Lviv, located in the west of Ukraine. In the meantime, the attack on Mariupol continued as the city remains “contested,” Reuters cited a U.S. official as saying.
On top of the geopolitical uncertainty, recession calls are growing from various banks. The International Monetary Fund (IMF) also warned that Russia’s attack on Ukraine could threaten the world’s economic recovery. The IMF is scheduled to cut its global growth outlook this week as it starts its Spring Meetings Monday.
“To put it simply: we are facing a crisis on top of a crisis,” said IMF’s managing director Kristalina Georgieva in a speech Thursday. “Russia’s invasion of Ukraine, devastating for the Ukrainian economy, is sending shockwaves throughout the globe.”
The World Bank cut its global economic forecast to 3.2% from 4.1% for 2022, citing Russia’s invasion of Ukraine. “Countries are under severe financial stress — 60% of low-income countries are already in debt distress or at high risk of it,” World Bank’s president David Malpass said Monday.
With banks like Goldman Sachs raising the risk of a recession in the U.S., the markets will remain cautious.
“No one has an answer as to when and how a recession will hit. But the probability of one occurring is on the rise. Inflation in the world’s largest economy is running at a four-decade high, the Fed is scrambling to tighten policy and likely to start raising rates in 50 basis points increments, China’s zero-Covid policy is creating further supply chain shocks, and of course there is a war in Ukraine that is showing no signs of ending soon,” said Exinity chief market strategist Hussein Sayed.
In light of this, the U.S. dollar continued to climb along with the U.S. Treasury yields. At the time of writing, the U.S. dollar index was trading at 100.80 and the 10-year yield was at 2.859%.
At the same time, gold managed to breach the $2,000 an ounce level early Monday, but prices retreated later in the session. June Comex gold futures were last trading at $1,987.30, up 0.63% on the day.
Gold has seen a strong bid on its safe-haven properties, according to analysts. “Russia appears to be preparing to launch a major offensive in the east of the country – that is generating considerable demand for gold as a safe haven,” said Commerzbank analyst Daniel Briesemann. “One of the factors that has lent buoyancy to gold in recent days has been strong buying interest on the part of ETF investors.”
The precious metal has been steadily climbing, said MKS PAMP head of metals strategy Nicky Shiels. “The $1,900-1,950 range gave way to $1,920-$1,960, which has now ratcheted up to $1,950-1,980,” Shiels noted, recommending to buy on pullbacks. “Gold hasn’t garnered the broader generalist support but that crowd don’t seem to have the pluck to be short; sidelined bears sub $1,900 but bulls at $2,000+.”
On the other hand, the crypto space was down along with U.S. stocks. Bitcoin was trading below $40,000 and Ethereum below $3,000, down more than 5% and more than 8% in the last seven days, respectively.
Overall, the recovery in the crypto space has stalled at the end of March after prices rose to the highs not seen since January.
Even the crypto’s fear and greed index, an indicator used to gauge the mood of crypto, turned to “extreme fear” last week, dropping from 37 to 22. The index measures readings between one and 100, and the higher the reading, the more greed and buyers are out there. Lower readings point to fear and more selling in the market.
There is bearish sentiment out there, with some analysts pointing to $30,000 as a key level to keep an eye on for Bitcoin in case there are further selloffs
BitMEX co-founder Arthur Hayes said that a drop to $30,000 is possible by June. “There are many crypto market pundits who believe the worst is over,” Hayes said in a blog post. “I believe they ignore the inconvenient truth.”
Hayes’ outlook sees Bitcoin and Ethereum continuing to mirror tech stocks and closely following the risk sentiment in the marketplace due to the upcoming aggressive tightening cycle but the Federal Reserve.
Technical analysis also suggests that Bitcoin could test the $35,000, which might not hold, said 22V ResearchTechnical analyst John Roque. “We continue to believe that it will get to the $30,000 level,” Roque said in a note.
Strategists at Glassnode also said that Bitcoin’s correlation to risk-on assets is not waning. “Our analysis continues to suggest that this renewed sensitivity to market risks and a higher likelihood of stronger drawdowns has not been due to a lack of confidence in [BTC] but rather due to a charged macroeconomic environment,” they said. “On-chain activity remains fairly muted, suggesting that there is little growth in the user-base, minimal inflows of new demand, and that the market remains largely HODLer dominated.”
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