The football World Cup is gradually approaching its climax: this time next week, as we write these lines, we will already know who has made it into the final rounds. The round of sixteen was anything but dull — who would have thought Norway could give Brazil a real scare, or that Egypt would push Argentina to the brink of defeat? The financial markets, too, are showing no sign of a quiet summer lull. Trading was brisk both before and after the long Independence Day weekend in the US.
Weak US jobs data weighs on the dollar and yields
Let's take things in order: after new Fed Chair Kevin Warsh explained in the middle of last week that inflation risks and expectations had eased somewhat recently, US labor market data for June was released last Thursday. The number of new jobs created came in noticeably below expectations. In addition, the labor force participation rate — the share of the population that is working or actively looking for work — fell unusually sharply, by 0.3 percentage points. This suggests that the labor market is currently not generating strong inflationary pressure: it remains robust but is not overheating. As a result, no extremely high wage increases are expected that might tempt companies into steep price hikes for their goods or services. US yields fell noticeably on the back of this, the US dollar came under pressure, and precious and industrial metals became more expensive.
Middle East escalation drives up oil prices and bond yields
This week, the focus shifted back to the Middle East. Despite the ceasefire agreed between the US and Iran, renewed attacks occurred following several incidents in the Strait of Hormuz. Oil prices rose sharply as a result, as did government bond yields. These moves intensified further after US President Donald Trump stated yesterday that, in his view, the ceasefire was over. Gold prices reacted as they so often have in recent months to this mix of factors, giving back the gains made at the end of last week.
Gold caught between Middle East worries and bargain hunters
Gold was trading at around US$4,070 per ounce last Thursday morning, then jumped to US$4,140 per ounce following the US jobs data and closed out the week at US$4,180 per ounce. After briefly climbing above the US$4,200-per-ounce mark on Monday night, the renewed escalation in the Middle East weighed on gold prices, which fell to around US$4,022 per ounce. At that point, however, "bargain hunters" appear to have stepped in: as we write these lines on Thursday morning, gold is trading at around US$4,105 per ounce.
Xetra-Gold price tracks the gold price movement
The Xetra-Gold price also gave back part of the gains it had made following the US jobs data. During regular trading hours, it rose from €114.90 per gram last Thursday morning to around €117.60 per gram on Thursday afternoon, after the data was released. On Tuesday afternoon it nearly touched that level again before developments in the Middle East sent it sliding toward €113.50 per gram. This Thursday morning, the Xetra-Gold price has recovered somewhat, starting the trading day at around €115.50 per gram.
Outlook: geopolitics and US inflation data in focus
With the situation in the Middle East, a topic has returned that financial markets may have written off a little too soon. In the coming days, too, markets' attention could remain on geopolitics. Market participants are also awaiting the release of US consumer price data next Wednesday with great anticipation.
I wish all readers another lovely, sunny weekend — without too much summer heat.