Anyone who has ever been to South Africa’s national parks knows the so-called Big Five: elephant, rhino, buffalo, lion, and leopard. The ECB Symposium in Sintra in beautiful Portugal did not bring together the Big Five, but the big four central bank governors for a panel discussion last Wednesday: ECB President Christine Lagarde, US Federal Reserve Governor Jerome Powell, and their counterparts from the Bank of England and Bank of Japan.
No rate hike pause in sight
With the exception of Bank of Japan Governor Udea, all of them made statements indicating that they consider the fight against high inflation rates far from over. Another rate hike at the end of July is likely, according to Lagarde. Powell repeatedly emphasized that the majority of the members of the Fed Monetary Policy Committee expect two further rate hikes of 0.25 percentage points for the rest of this year – and not just one as priced in by the markets.
Tailwind for US dollar
Since the markets appear to be heeding Powell’s words and the US economic data published throughout the week was entirely and, in some cases, well above expectations, the markets repriced the Fed monetary policy: since yesterday afternoon, 1½ further Fed rate hikes of 0.25 percentage points are being priced in. At the same time, all rate cuts for 2023 previously expected on the interest rate futures markets have been fully priced out, which also seems reasonable under the current circumstances. As a result, US Treasury yields are rising significantly; two-year government bonds by 0.15 percentage points yesterday alone. This, in turn, boosted the US dollar, making for extremely unpleasant circumstances for gold.
From 1,915 US$ per ounce last Friday morning, gold climbed to a one-week high of 1,936 on Friday afternoon following weak economic data from the eurozone and the US. It held up well on Monday and Tuesday before the publication of extremely strong US economic data on Tuesday afternoon, which caused gold prices to slide, as did Powell’s remarks in Sintra. Yesterday afternoon, the precious metal dropped very briefly to 1,893 US$ per ounce, but recovered just as quickly back to 1,910 as obviously robust demand supported prices. It currently trades at 1,906.
Xetra-Gold stable week-on-week
The Xetra-Gold price held up slightly better as the euro weakened against the US dollar. From 56.35 € per gram on Friday morning and a high of 57.15 in the afternoon, Xetra-Gold also weakened, especially from Tuesday onwards, to 55.90 on Wednesday. It was expected to start trading this morning near last Friday’s level, around 56.40.
Today, we await the publication of important US inflation data, and the end of the half-year could cause market movement. Next week starts with a short trading day (Monday) and a bank holiday (Tuesday) in the US. Next Friday’s US labour market report is the upcoming data highlight.
I wish all readers a relaxing weekend.