The gold price has been trading sideways around the 5,000 US$ per ounce mark over the past days, at times slightly higher, then slightly lower. The main gold price driver became especially apparent yesterday, when the sharp rise in oil prices led to a notable decline for the precious metal.
Oil prices, inflation, and interest rates influence gold market
The causal chain is as follows: a further and sustained rise in energy commodity prices is likely to result in rising inflation expectations and inflation rates. This, in turn, is likely to prompt central banks to raise key interest rates, and government bond yields could also rise further. The US dollar could then receive further tailwind from rising US bond yields.
Market reactions: interest rate expectations shifting significantly
The above-described scenario is what markets are increasingly expecting and thus factoring in. Following yesterday’s Fed meeting, the interest rate futures markets did not fully factor in a further potential rate cut until the summer of 2027. Until recently, market participants were still anticipating two rate cuts this year. Fed Chair Jerome Powell had made it clear that rate cuts would only be possible once inflation approaches the 2.0 percent target. Expectations regarding the ECB have shifted even more significantly. Last night, the futures markets projected two rate hikes of 0.25 percentage points each by the end of this year. Back in February, another rate cut had been the more widely expected outcome.
Gold price drops sharply: overview of current price trends
These developments translated into stiff headwinds for gold. While the precious metal traded at 5,165 US$ per ounce last Thursday morning, it dropped to around 5,020 by the end of the week. After appearing to be magically drawn to the 5,000 mark until yesterday morning, gold fell sharply to 4,805 due to soaring oil prices and the robust rise in yields. As of Thursday morning, gold is trading at 4,820 US$ per ounce.
Xetra-Gold under pressure
The Xetra-Gold price also came under pressure, dropping from 143.80 € per gram last Thursday morning and 144.45 on Thursday afternoon to 141.65 by the end of the week. On Monday and Tuesday, prices mostly moved sideways around the 140 mark before dropping to 135.20 yesterday. This morning, trading kicked off around 7:30 a.m. even lower, around 135 € per gram.
Outlook: focus on oil prices, Middle East conflict, central bank meetings
Developments in the Middle East and oil prices continue to determine the direction of gold. Today, however, market participants will also be watching a number of exciting central bank meetings closely to analyze whether the potential and increasingly expected interest rate hikes are being discussed by the central banks.
I wish all readers a peaceful weekend free of negative news.