For logistical reasons (podcast recording on Thursday morning at the Frankfurt Stock Exchange), I had to put pen to paper, or rather, fingers to keys, a day early this week. Timing has proven excellent, as hope has been growing across the financial markets since Wednesday morning for an official end to hostilities in the Middle East. Media reports indicated negotiations on a memorandum between the US and Iran aimed at finally ending the fighting currently on hold due to the ceasefire. Market reactions were accordingly strong, with oil prices dropping by more than seven percent. Government bond yields were also down, the US dollar came under pressure, and gold prices gained momentum – the reactions we have seen repeatedly over the past weeks whenever there was a glimmer of hope for a de-escalation of the Middle East conflict.
Fed and ECB interest rate decisions impact gold price
At the end of last week, gold prices had faced headwinds. Markets interpreted the Fed meeting’s outcome to mean that interest rate cuts in the US would likely be put on the back burner for the time being. In addition, ECB President Christine Lagarde noted a day later that the ECB had discussed potential interest rate hikes during its meeting last Thursday, although they remained unchanged for the time being. The markets do, however, firmly expect a rate hike in mid-June and are factoring in further hikes by the end of the year. This initially kept gold prices in check.
Gold price caught between geopolitical risks and interest rate speculation
While gold traded at around 4,570 US$ per ounce last Thursday morning, it closed the week at 4,615 on Labor Day. On Monday, oil prices initially rose sharply, and bond yields also continued their upward trend, causing gold to trade at its weekly low (thus far) of around 4,501. On Wednesday, major optimism returned to the markets, as detailed above, which is why gold rose from 4,550 in the morning to 4,710 US$ per ounce by noon.
Xetra-Gold price over the course of the week
The Xetra-Gold price also strengthened. Initially down, from 125.90 € per gram at the start of trading last Thursday morning, it had risen to around 124.10 by Monday afternoon. Xetra-Gold hovered around 126 on Tuesday before reaching 128.70 € per gram on Wednesday afternoon.
Outlook: Focus on Middle East and US labor market data
Developments in the Middle East remain the key influencing factor across markets in the short term, with a sustainable deescalation bearing the potential to further boost the gold price. On Friday, market participants will be watching closely for the release of US labor market data for April.
I wish all readers a great weekend.