Gold hits two-week high on German political turmoil

LONDON (May 6) Gold (XAU/USD) hits $3,387 at the time of writing, printing a fresh two-week high as geopolitical tensions around the globe continue to support investors’ demand for safe-haven assets. In the Middle East, Israel is further preparing its ground offensive in the Gaza Strip with the aim of fully controlling the area. 

In the United States (US), pressure is building on US President Donald Trump and his administration to finally announce a first trade deal. Trump and his cabinet have been very vocal about deals being imminent, with US Commerce Secretary Howard Lutnick saying that the first trade deal will be with a top ten economy, Fox News reported. 

Meanwhile, some very sharp moves in the Forex market are also keeping investors on edge. Traders are trying to assess how to position themselves after the fallout of the Taiwan Dollar (TWD) move seen on Monday after it appreciated sharply against the US Dollar (USD). The bigger risk is having a domino effect on the US Dollar – which could weaken against other major Asian currencies – making it no longer a steady and reliable safe haven currency and thus benefiting Gold. 

An additional element that pushes the precious metal even higher this Tuesday, comes from the German Bundestag, the German Parliament. A rather ceremonial vote to secure the nomination of Chancellor Friedrich Merz fell short of a majority. This event has never taken place in German history and means that the Chancellor already lost trust of the coalition majority, which opens up the door to German political uncertainty with no clues on when a new vote could take place, or a new Chancellor needs to be elected, or even new snap elections need to be held.

Daily digest market movers: Difficulties in Asia

• Market sentiment is improving a touch on Tuesday after the Taiwan Dollar (TWD) move on Monday, but the focus on Asian currencies persists. Saxo’s Chief Investment Strategist in Singapore, Charu Chanana, said that "the real action today is in Asian FX”. Chanana went on by saying that "If these currencies keep strengthening sharply, it could spark fears of a 'reverse Asian currency crisis', with potential ripple effects in the bond market amid fears that Asian institutions reassess their unhedged exposure to Treasury holdings," Reuters reports. Generally, Gold benefits when US bonds are starting to show lower yield returns for investors. 
• The Shanghai Gold Exchange plans to expand its warehouse network to Hong Kong, helping to raise the profile of its yuan-denominated products, including for the precious metal beyond mainland China, Bloomberg reports.
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May's meeting stands at 2.4% against a 97.6% probability of no change. The June meeting sees a 29.8% chance of a rate cut.

FXStreet