No sooner had the first signs of autumn appeared last weekend, bringing storms and rain, than gold prices were also caught in a low-pressure system. There was no specific fundamental trigger for this. However, two familiar adversaries once again weighed on the precious metal, namely yields and the US dollar. On yields, the picture is not entirely clear at first glance, as yields on long-dated US and German government bonds fell sharply. In return, though, those on other European government bonds rose, in some cases noticeably. Moreover, yields on shorter-dated paper remained at elevated levels around the globe, since inflation risks persist, which is likely to prompt further key rate hikes by many central banks.
Energy prices: inflation pressure weighs on gold
More generally, the higher the oil price, the greater the inflation risks and the higher the likelihood that central banks will raise interest rates. This tends to create headwinds for gold prices. Last week, the price of Brent crude reached the mark of around 117 US dollars per barrel for the first time since May. That is not all: natural gas continues to become more expensive, too, and yesterday rose to 100 euros per megawatt hour on the Dutch TTF futures exchange for the first time since the end of 2022. Prices have more than tripled since the start of the year. On a personal note: perhaps it was a good thing that the gas heating in our residential complex failed for a while this week. It gave us a chance to get into training for the winter …
Strong US dollar and rate outlook weigh on gold
The sustained strength of the US dollar, which briefly rose to a 17-month high against the euro yesterday, is also dampening gold prices. This week is also dominated by several central bank meetings. The Bank of Canada raised its key interest rates yesterday for the first time in three years. The Fed held back and left key interest rates unchanged, but hinted that a further rate step in December could well be on the cards, and may even be likely. Futures markets are pricing in a further hike at that point with a probability of 80 per cent.
Gold price: from selling pressure to slight stabilisation
This combination of factors continues to weigh on prices. On Thursday morning last week, gold was trading at around 4,090 US$ per ounce. During the day, however, gold prices headed south, and the downward movement accelerated on Friday. Sales by large investors to limit losses probably played a significant role here. Briefly, gold slid to about 3,975 US$ per ounce. After trading alternately above and just below 4,000 US$ per ounce on the first two trading days of this week, gold stabilised somewhat from yesterday, reaching a peak of around 4,082 US$ per ounce. This morning at 7.30 a.m., gold is trading at 4,030 US$ per ounce.
Xetra-Gold: weaker euro cushions losses
The Xetra-Gold price therefore also depreciated somewhat, though less sharply, helped by the weaker euro against the US dollar. During normal trading hours, it rose from 117 € per gram last Thursday morning to about 118.7 € per gram on the same day. On Friday it then depreciated to 114.2 € per gram. In the first half of the week, prices recovered moderately to 117.7 € per gram. If the price remains at its current level when trading opens shortly, Xetra-Gold would currently be quoted slightly lower than at this time a week ago, namely at 116.6 € per gram.
Outlook: US midterm elections move into focus
The ECB is also expected to leave key interest rates unchanged, as is the Bank of Japan tomorrow. Attention is therefore likely to shift towards the US midterm elections next Tuesday, in particular with regard to their potential impact on the situation in the Middle East. In addition, eurozone inflation data are due on 4 November.
I wish all readers a relaxing weekend and hope it brings no unwelcome surprises. For logistical reasons, I will not be able to write this market commentary again until mid-November, but hopefully then with more cheerful news, since the “golden October” has evidently failed to materialise this time …