There is nothing (or very little) new to report from the Middle East. While Timmy, the stranded humpback whale in the Baltic Sea, did at least change his position recently (though he did need a little help), the ships off the Strait of Hormuz once again remained stationary throughout the week as the strait remained blocked. As for the question crucial to the financial markets, i.e. when the tankers and ships stuck in the strait will finally be cleared for passage, we are thus far no closer to an answer.
Rising oil prices put pressure on global markets
Along with many other commodities, oil exports in the Middle East, among others, are hit hard by this deadlock and the oil price continues to rise daily. Earlier this morning, the June Brent contract traded above 126 US$ per barrel, the highest level since 2022. Prices for futures contracts for December 2026 and spring 2027 have also risen noticeably over recent days. The negative correlation between gold and oil prices, mentioned several times in recent weeks, remains intact. When oil prices rise, gold (and silver) prices drop, and vice versa, which is still due to rising inflation expectations. An ECB survey is exemplary for the phenomenon: according to the ECB monthly consumer survey, consumer inflation expectations in the eurozone rose noticeably in March. Respondents now expect prices to rise by 4.0 percent over the next twelve months, up from 2.5 percent in February.
Inflation expectations rise, interest rate hikes back in focus
As recently as February, central banks were still expected to cut key interest rates further this year. Rising inflation expectations, however, currently increase the likelihood for some central banks to issue rate hikes, which are increasingly being factored into the futures markets, the ECB being a prime example. As of this morning, the markets are factoring in three rate hikes of 0.25 percentage points each by the end of the year. The higher the “safe” interest rate, the worse it is for gold, which pays neither interest nor dividends. Both the Bank of England and the ECB are meeting this afternoon. This may allow financial markets and analysts to verify their assessments (or perhaps be proven wrong). In the US, the Fed meeting was conducted yesterday evening and saw three members of the Open Market Committee speak out against signaling further interest rate cuts. Across futures markets, the prevailing view is now that the Fed would also be more likely to raise interest rates in the spring of 2027.
Gold price under pressure: a look back at last week’s developments
While gold traded around 4,765 US$ per ounce last Wednesday morning, it initially dropped moderately to 4,710 by the end of the week. Until Tuesday morning, it remained largely steady around the 4,700 level before the ever-rising oil prices intensified the pressure. As early as Tuesday, gold dove toward 4,550, dropping even further yesterday to around 4,510. As of Thursday morning, the precious metal is trading around a somewhat recovered 4,570 per ounce. End-of-month positioning or the seeking of safe havens ahead of the long weekend in the UK and many other European countries could be at play here.
Xetra-Gold: continuing weakness
The Xetra-Gold price also declined, only slightly from 130.40 € per gram at the start of trading last Thursday morning, to 129.70 by the end of the week. It came under pressure right at the start of trading on Monday, which intensified on Tuesday and hit a weekly low of around 124.10 before seeing a moderate recovery. This morning, Xetra-Gold was expected to start the trading day at around 125.90 € per gram.
Outlook: bank holidays and illiquid markets impact price movements
Following this afternoon’s central bank meetings and tomorrow’s May Day holiday here in Germany, the coming week will see additional holidays around the globe (Monday in the UK, as well as a number of public holidays in Japan and China), which will likely decrease liquidity, particularly in Asia. In the short term, the “fate” of gold prices continues to hinge on the development of oil prices.
I wish all readers a sunny start to the merry month of May.