While Germany's soccer squad packed their bags earlier than planned and are now watching the World Cup from their sofas at home, gold prices at least showed some fighting spirit yesterday — though they continued to struggle.
Fed rhetoric weighs on gold
As a reminder: two weeks ago, the US Federal Reserve emphasized that price stability remains the absolute priority of its monetary policy. This fueled expectations among many market participants of robust rate hikes and a more restrictive policy stance. In turn, US Treasury yields rose and the US dollar gained momentum — both of which, as the textbooks would have it, exerted downward pressure on gold. By the end of last week, futures traders' nerves had calmed somewhat, but Treasury yields and the dollar remained at relatively elevated levels.
Fed Chair Warsh signals easing inflation risks
Some relief arrived for long-suffering gold investors yesterday afternoon. For the first time since the Fed meeting two weeks ago, new Fed Chair Kevin Warsh made public remarks on inflation and monetary policy at the annual ECB symposium in Sintra. He noted that inflation risks and expectations had diminished in recent weeks, particularly due to falling energy and gasoline prices. He reiterated, however, that the Fed's 2.0 percent inflation target remains unchanged and continues to hold the highest priority. Warsh carefully avoided any guidance on the future rate path. Markets nevertheless focused on his comments about declining inflation risks: two-year Treasury yields fell by more than 0.06 percentage points during the discussion. The move was reinforced by the ISM Manufacturing Index, an important leading indicator released shortly afterward. Its prices sub-index posted a sharp decline from 82.1 to 73.0 points, suggesting that industrial companies expect pricing pressure to ease in the months ahead.
Gold price action: from weekly low to fresh upside impulse
This triggered a move to a new weekly high in gold prices, supported by a simultaneous pullback in oil prices. Having traded at around $3,975 per ounce last Thursday morning, gold recovered to $4,090 per ounce by the end of the week. Early this week, however, pressure on the yellow metal resumed. Just ahead of the half-year close on Tuesday, the gold price slipped to $3,944 per ounce — its lowest level since last November. After some back-and-forth around the $4,000 per ounce mark, gold jumped to around $4,115 per ounce yesterday afternoon for the reasons mentioned above, before running out of steam toward the end of the session. As of Thursday morning, gold is trading at around $4,070 per ounce.
Xetra-Gold®: broadly in line with gold
The Xetra-Gold price tracked gold closely. During regular trading hours, it rose from €112.60 per gram last Thursday morning to €115.25 per gram by the end of the week. The weekly low so far was recorded at the start of yesterday's session at €111.70 per gram, before a sharp afternoon jump took the price to €116.50 per gram. This Thursday morning, Xetra-Gold is expected to open at around €114.90 per gram.
Outlook: US labor market data and a potential Fed pivot
A new half-year, a fresh start. Let's see how things unfold. Due to the Independence Day celebrations, US employment data will be released today, Thursday, rather than the usual Friday. Should the numbers diverge significantly from expectations, markets could see further notable moves. Otherwise, a calm end to the week seems likely. If market participants come to believe that the Fed may not need to raise rates further — given that the inflation threat may not prove as persistent as recently feared — this could provide fresh tailwinds for the most precious of all metals. As the great Franz Beckenbauer once wisely put it: we'll just have to wait and see.
I wish all readers a beautiful, sunny weekend.