The summer lull feared by many market watchers appears to be approaching fast. This refers to a period that's often relatively uneventful for markets, as many market participants trade their screens for the mountains or the beach and embrace some well-earned leisure time. Next week, school holidays will be underway in all but two German states – if I'm not mistaken – the football World Cup will be history, the tour by the greatest band in music history, Iron Maiden, will pause for the summer, and marathon events will also be hard to come by.
Middle East escalation and US inflation data drive the market
This looming summer lull could explain the somewhat sluggish trading seen this week. After all, markets have had at least two hot-button issues over the past few days: renewed escalation of fighting in the Middle East, and US inflation data. Developments in the US-Iran conflict have triggered the familiar effects of recent weeks: traders and analysts are focused primarily on oil prices, which have risen steadily and significantly for almost two weeks now. This has again pushed up inflation risks, lifted bond yields, and tended to provide a tailwind for the US dollar.
Softer inflation data eases rate concerns
US inflation data had exactly the opposite effect: both consumer and producer price inflation came in notably below forecasts in June, which brought relief to markets and led traders to price out the likelihood of near-term rate hikes by the US Federal Reserve. That, in turn, meant lower US yields and a somewhat weaker US dollar.
Opposing forces keep gold trading in a narrow range
In the end, these two developments largely offset each other, meaning gold fought its way through the week within a relatively narrow trading range. Overall, headwinds may have grown somewhat stronger, since the US inflation data refer to June, and July inflation could pick up again given current higher oil and gasoline prices.
Gold price trends over the week
Gold prices stood at around 4,105 US$ per ounce on Thursday morning last week before climbing to a weekly high of about 4,138 US$ per ounce the same day. As fighting flared up again in the Middle East and oil prices rose sharply, prices fell from the start of trading on Monday to around 3,985 US$ per ounce by Tuesday night. The US inflation data then triggered a jump to 4,100 US$ per ounce on Tuesday afternoon. Since then, gold prices have been unable to settle on a clear direction, though they continue to trade above the 4,000 US$ per ounce mark. As these lines are being written on Thursday morning, gold is trading at around 4,030 US$ per ounce.
Xetra-Gold price moves in step with the euro
The Xetra-Gold price moved in largely similar fashion, as the EUR/USD exchange rate wasn't exactly a picture of volatility either: during regular trading hours, it rose from 115.50 € per gram last Thursday morning to around 116.20 € per gram by Thursday afternoon. After closing the week at 115.50 € per gram, it fell to a weekly low of around 112.85 € per gram on Monday afternoon. Following a brief move back above the 115.00 € per gram mark after the US inflation data, the Xetra-Gold price starts trading this Thursday morning at around 113.85 € per gram.
Outlook: central bank meetings could bring fresh momentum
In the coming days, developments in the Middle East and their impact on oil prices could continue to set the direction. However, many central banks, including the ECB and the Fed, are also meeting before the end of July. Perhaps that will bring a bit of excitement back to the financial markets.
I wish all our readers a pleasant weekend and, for those heading off soon, a great start to the summer break.