These days, traders with high blood pressure need to be particularly resilient. At the start of this week in particular, volatility across financial markets reached unprecedented levels. The focus remains on geopolitical developments, which are keeping the world on edge.
Investors look to reduce risk; weekend tactics fuel anxiety
We are currently seeing investors slightly scaling back their positions on Fridays for fear of negative news developments over the weekend. Last Friday, we saw the tactic indeed making sense. After the market closed, Trump stated that the US expected to achieve its goals in the Middle East conflict before long, causing a sharp drop in oil prices on the still-open futures markets. However, shortly thereafter, Trump issued an ultimatum to Iran, demanding that it open the Strait of Hormuz within 48 hours and threatening to strike its energy infrastructure if it failed to comply.
Massive market reactions: oil prices up by double digits, yields rise
This led to a sharp increase in oil prices of more than 10 percent on Monday morning, a massive surge in government bond yields (ten-year Bunds traded at their highest level in 15 years, while yields for two-year US Treasuries rose above the 4 percent mark) and interest rate hikes by major industrialized nations’ central banks were robustly factored in. Shortly after trading opened in London, these developments caused a selloff in the precious metals markets, sending gold to its lowest level since the start of the year.
Signs of de-escalation ease turbulence: gold price recovers
After Trump extended the ultimatum to five days via a social media post at noon CET and simultaneously mentioned US-Iranian negotiation talks, the financial markets calmed somewhat and the gold price recovered due to falling oil prices and yields. The situation remains uncertain, with the chances or risks of sudden sharp price movements due to a changing news landscape likely to persist.
Rumors of central bank gold sales weigh on the precious metal
Incidentally, some central banks’ considerations to sell gold in an effort to generate US dollar liquidity have been in the news. Countries mentioned include Poland (rather unlikely, as Poland’s central bank had announced just at the beginning of the year that it would increase its gold holdings) and Turkey (rather likely, as already in the past, the central bank has actively liquidated its gold holdings).
Gold price in freefall and recovery: extreme fluctuations within few days
This news further weighed on sentiment for gold prices. From 4,820 US$ per ounce last Thursday morning, gold had dropped to exactly 4,500 by the end of the week. On Monday morning, the aforementioned heavy selling pressure set in, stopping at 4,100. Following Trump’s social media post at noon, the precious metal recovered to 4,500 and briefly dipped above the 4,600 mark yesterday. At the time of writing this report (Thursday morning), gold traded 4,440 US$ per ounce.
Xetra Gold under significant pressure: sharp losses and rapid rebound
Xetra-Gold did not emerge unscathed from these events, dropping from just under 133.00 € per gram at the start of trading last Thursday morning to around 127.50 € per gram by the end of the week. On Monday, it plummeted rapidly to 117.20 before recovering to 125 in the afternoon. Yesterday, it peaked at a slightly higher 127.05 and kicked off trading this morning at 8:00 at around 123.50 € per gram.
Oil prices and geopolitics continue to drive market movements
News regarding the situation in the Middle East is currently the primary determining factor for oil prices. This, in turn, drives nearly every other price movement, including gold. Next week’s focus will also include quarter-end results and US labor market data.
I wish all readers a restful weekend.