As tomorrow is a German bank holiday, I’m once again picking up my (electronic) pen a day early this week, on Wednesday. First, belated Happy Mother’s Day to all the moms out there for last Sunday, and Happy Father’s Day, celebrated tomorrow in Germany. On my agenda this weekend: another marathon.
Middle East conflict continues to weigh on financial markets
The conflict in the Middle East is also turning into a marathon – despite the ceasefire that has now lasted just under five weeks. Running takes you closer to the finish line step by step, whereas progress toward a peace agreement between the US and Iran has continued to come in tiny steps, if at all, over the past days. Due to recently escalated rhetoric and Trump’s clear rejection of an Iranian proposal, financial markets have been leaning towards risk aversion, as reflected primarily in the sharp oil price rise early this week.
Inflation data and interest rate expectations drive bond yields
Both the rise in oil prices and yesterday’s release of US consumer price inflation data for April, which, at 3.8 percent, was slightly above market consensus, led to a renewed rise in government bond yields, as well as a more robust factoring in of potential interest rate hikes by central banks such as the ECB or the Bank of England. Last week, the central banks of Australia and Norway had already raised key interest rates. For the ECB, a hike could be on June’s agenda. In addition, the US dollar was bolstered by robust US consumer price data. On the flip side, gold saw its upward momentum somewhat slowed.
Gold largely stable in US dollars
After a robust daily rise, gold traded around 4,710 US$ per ounce last Wednesday afternoon and settled in at 4,715 by the end of the week. After hitting a weekly low of around 4,640 on Monday (due to a sharp rise in oil prices) and a weekly high of over 4,770 on Tuesday, the precious metal traded at 4,712 US$ per ounce this morning, almost exactly at the previous week’s level.
Xetra-Gold with similar price movement
The Xetra-Gold price also showed little mobility, though the euro periodically pushed higher against the US dollar. Xetra-Gold rose from 128.70 € per gram last Wednesday at noon to around 130.10 on Thursday afternoon. On Friday and Monday, however, it dropped to a weekly low of 127.10 but quickly recovered. This morning, Xetra-Gold was expected to open trading at around 129.00 € per gram, the same as last Wednesday’s level.
US-Chinese summit
Markets are eagerly awaiting tomorrow’s meeting between Trump and Chinese President Xi, particularly regarding a discussion on a sustainable de-escalation in the Middle East.
I wish all readers a pleasant weekend and/or bank holiday.