After delivering somber news to gold investors last week, things are looking up – much like the change in the weather, with last week’s autumn rains giving way to midsummer temperatures once again. I am actually off writing duty this week – for those who are curious, I recommend the “Commodities Talk” with Manuel Koch, which should be available at the same time as these lines and will shed light on this mystery. Although I am away from my desk, I am putting the figurative pen to paper for this report, albeit on a Tuesday afternoon.
Gold price dops to annual low
Last Thursday morning, gold fell to its lowest level since the start of the year, to around 4,024 US$ per ounce. The uncertain situation in the Middle East, rising inflation rates, the shift in central banks’ monetary policy toward interest rate hikes, and the exodus of speculative investors from gold positions had put the yellow metal under heavy pressure. However, as expected, the 4,000 US$ per ounce level has thus far held steady. No one dared to bet on a break below this level, and the precious metal recovered intraday by about 200 US$ per ounce from its lows.
Interest rate moves and geopolitical signals
This was despite the ECB having raised key interest rates that afternoon. It was a move which had, however, already been firmly factored into the markets in advance. Trump announced via social media on Sunday evening, shortly after the German national soccer team’s first match at the World Cup, that a so-called “Memorandum of Understanding” between the US and Iran was to be signed this Friday. It is said to include a further 60-day ceasefire as well as the reopening of the Strait of Hormuz, which had been blocked since late February. Strong market reactions ensued on Monday.
Reactions across commodity and FX markets
Oil prices fell noticeably, and inflation expectations were revised downward, as were the expectations of interest rate hikes by central banks factored into the interest rate futures markets. The US dollar also weakened moderately, which likewise supported gold prices.
Gold in US dollars over the course of the week
Gold kicked off European trading last Thursday at around 4,095 US$ per ounce. By the end of the day, the precious metal had already recovered to above 4,200, closing the week on Friday at 4,220. On Monday, US dollar gold started off the new week at around 4,280 and traded at a daily high of about 4,369. As of 3:30 p.m. on Tuesday, the time this article was written, it traded at a slightly lower 4,340 US$ per ounce.
Xetra-Gold also gaining ground
The Xetra-Gold price also strengthened, from 114 € per gram last Thursday morning to 117.50 by Friday evening, also surging sharply right at the start of trading on Monday and reaching an intraday high of 120.90 in the afternoon. On Tuesday afternoon, Xetra-Gold traded at a slightly lower 120.20 € per gram.
Caution despite positive signals
Not to dampen the euphoria, but with the Brent price currently at 80 US$ per barrel, I would have expected a stronger euro against the US dollar as well as slightly higher gold prices than what we are currently seeing. My personal guess is that the markets are not yet willing to fully factor in the opening of the Strait of Hormuz and a lasting normalization of the geopolitical situation. Better safe than sorry. And if even Spain can’t beat Cape Verde in the World Cup, who would assume that the de-escalation in the Middle East is now a done deal? Moreover, the US and UK central banks, among others, are set to meet later this week, which I’ll report on next week.
Amid rising summer temperatures, I hope our readers keep their cool and have a good time watching the soccer world cup.