In its seventh week since the start of escalating hostilities in the Middle East, the situation there continues to dominate the headlines and market sentiment. Despite the initial failure of negotiations between the US and Iran in Pakistan last weekend, hope is growing across financial markets that it may still be possible to find a modus vivendi that brings an end to the fighting.
Financial market recovery: focus on stocks, euro and commodities
As a result, many assets have returned to the levels at which they were trading when hostilities in the Middle East began. The US stock markets, for example, were also supported by a strong start to the earnings season and thus reached several new all-time highs yesterday. The euro-to-dollar exchange rate recently stood just above 1.18 US$ per €, where it had last stood at the end of February. Gold, on the other hand, has not quite been able to recoup its losses since early March. After all, the precious metal had traded above 5,100 US$ per ounce at the time.
Rising commodity prices drive interest rate expectations, bond yields
The above development is likely primarily due to rising prices for crude oil, natural gas and several other commodities on the futures markets leading to increased expectations for central banks to increase interest rates. Government bond yields therefore also remain well above the levels seen at the end of February. This narrative was recently underscored once again by the sharp rise in the US Consumer Price Index from 2.4 percent the previous month to 3.3 percent in March. As often pointed out, higher yields usually have a dampening effect on gold performance. After all, the precious metal pays neither interest nor dividends – though it does shine beautifully.
Gold price: slight recovery despite fluctuations
Nevertheless, gold is trading moderately higher week on week. From 4,715 US$ per ounce last Thursday morning, it briefly surpassed the 4,800 mark intraday. After closing the week at around 4,750, gold briefly slipped at the start of trading on Monday as oil prices surged following Trump’s announcement that the US military would block the Strait of Hormuz. A short-lived weekly low was hit at 4,645 US$ per ounce. With hopes for a resumption of negotiations to cease hostilities, prices for the precious metal climbed to 4,871 on Wednesday before flattening. On Thursday morning, gold is trading at around 4,830 US$ per ounce.
Xetra-Gold follows upward trend with moderate gains
Xetra-Gold has also appreciated over the past days, from 130.20 € per gram at the opening of trading last Thursday morning to around 131.75 € at the close of trading of the same day. Prices dropped on Monday to 129.15 but recovered to 131.75 yesterday. This morning, Xetra-Gold was expected to kick off trading at around 131.50 € per gram.
Prospects of new talks could further boost gold
Reports of planned renewed US-Iranian talks recently lifted market sentiment. Should these talks in fact be held and a viable path toward de-escalation open up, gold could experience further tailwinds due to expectations of potentially falling oil prices and yields in the medium term.
I wish all readers a relaxing weekend.