Although many market participants should either already be on their summer break or at least be eagerly counting down the days until it starts, there is little sign of any summer calm. On the contrary, markets have grown increasingly jittery in recent days. At the start of this week, the signs actually pointed toward some relief: no new fighting or attacks were reported out of the Middle East on either Saturday or Sunday, which sent oil prices sharply lower. Brent crude, which was still trading at 102 US$ per barrel for the September contract last Thursday, dropped around 20 percent from there to about 82.50 US$ per barrel by Tuesday this week. WTI prices fell sharply as well.
Oil prices rebound: rate concerns weigh on bond markets
However, renewed attacks between the two sides broke out overnight into Wednesday, sending the oil price up 8 percent from Tuesday's close to yesterday afternoon. Separate from the turbulence in oil markets, more and more market participants grew "concerned" in recent days that the US Federal Reserve might raise interest rates as early as yesterday, Wednesday, given persistently high inflationary pressure. Where rate futures markets had priced in just a 10 percent probability a week earlier, that figure rose to around 40 percent by the end of last week. This initially put further upward pressure on US Treasury yields. Yields did ease somewhat at the start of this week alongside falling oil prices — though not as much as one might have expected.
Gold slips despite falling oil prices
Gold has something in common with oil here: one might rationally have expected falling oil prices to give gold a strong tailwind. Instead, it has edged lower since the start of the week. "Fear" of a Fed rate hike last night may have played a role.
Fed decision lifts the gold price
Gold was still trading at around 4,150 US$ per ounce on Wednesday afternoon last week, then slid — explained by high oil prices — to 4,020 US$ per ounce by Friday and closed out the week at 4,055 US$ per ounce. At Monday's market open, falling oil prices initially pushed gold back up to 4,115 US$ per ounce, a move that still made rational sense. Since then, however, prices have headed south, briefly dipping just below the 4,000 US$ per ounce mark yesterday afternoon. Then the Fed came to gold's rescue: by leaving interest rates unchanged, it lifted the looming threat of a rate hike, at least until mid-September. The gold price jumped from 4,020 US$ per ounce to 4,115 US$ per ounce. Now things get complicated: while gold is currently supported by a weaker US dollar and lower yields on short-dated US Treasuries, a sharp rise in long-dated Treasury yields is providing headwinds. This morning, the yellow metal still cannot decide on a direction. It is currently trading at 4,045 US$ per ounce.
Xetra-Gold: price movement tracks a stable euro
The Xetra-Gold® price moved largely in parallel, as the EUR/USD exchange rate saw little movement, as in previous weeks. During regular trading hours, it eased from 117.00 € per gram last Wednesday afternoon to around 114.50 € per gram by Friday afternoon's close of the week. After briefly touching 115.85 € per gram on Monday, the price here, too, declined fairly steadily, down to 112.85 € per gram yesterday afternoon. If it were trading at its 7 a.m. level at the market open, that would put it at 113.50 € per gram.
Outlook: central bank meetings and Middle East tensions in focus
After the Fed comes the Bank of England, and then the Bank of Japan. At the very least, tomorrow's meeting in Tokyo could still bring some tension. Next week's calendar is packed with US macro data. Before that, eurozone inflation data are due as well — tomorrow, in fact. And the news out of the Middle East will, of course, remain in focus.
I wish all readers a pleasant weekend.