Financial markets are currently focused squarely on the renewed sharp rise in oil and natural gas prices and its potential implications for growing inflation risks. Brent crude traded at times around 108 US$ per barrel, up 50 percent from early July. Natural gas prices on the Dutch TTF exchange even jumped to their highest level since late 2022.
Government bond yields climb
High energy commodity prices could further increase inflationary pressure over the medium term and thus require central banks to raise interest rates. This, in turn, was reflected in a marked rise in yields on the bond markets in recent days. Interest rate hikes typically affect short-term government bond yields first and foremost. However, since the issue of rapidly growing government debt in many countries is currently also playing a major role in financial markets, yields on long-term government bonds have risen noticeably as well. For example, yields on ten-year US Treasuries approached the 5 percent mark, while German Bunds yielded 3.51 percent, their highest level since 2009. Yields on ten-year government bonds also rose markedly in other eurozone countries, Japan, Canada, Australia, and elsewhere.
ECB raises rates again
Meanwhile, the ECB already took action yesterday, raising interest rates again by 0.25 percentage points. The deposit rate now stands at 2.5 percent. The ECB's statement was also interpreted by markets as signaling that further rate hikes are likely to follow. The ECB explained that it expects inflation to remain well above its 2 percent target for an extended period. As a result, futures markets are now pricing in further hikes: three additional rate increases of 0.25 percentage points each are priced in by June 2027. Futures markets are also betting that the US Federal Reserve will raise rates three times by June 2027 as well – markets are eagerly awaiting the Fed meeting in the middle of next week.
Gold price under pressure from rising yields
Rising interest rates and yields tend to weigh on gold prices, as was also evident in recent days. After all, gold pays neither interest nor dividends.
Gold traded at around 4,425 US$ per ounce on Thursday morning last week, then climbed further the same day to a weekly high of 4,510. The sharp rise in oil prices and yields subsequently pushed gold prices lower, after they had hovered around the 4,400 mark for a few days. Overnight, the price marked its weekly low so far at 4,301. This was followed by a swift recovery, with the price currently trading at 4,350 US$ per ounce.
Xetra-Gold price mirrors the trend
The Xetra-Gold price also eased moderately. During regular trading hours, it initially rose from 122.80 € per gram on Thursday morning last week to 124.80 € on Thursday afternoon. It then declined to around 119.45 € yesterday, Thursday, following the ECB meeting. The price has since recovered slightly to a current 120.50 € per gram.
Outlook: US consumer prices in focus
Following strong US labor market data last Friday, market participants are now turning their attention this afternoon to US consumer price data for August, hoping for clues from the data as to whether the Fed will raise interest rates next Wednesday or not. It remains an exciting time.
I hope all our readers enjoy a relaxing weekend.