… it’s Groundhog Day. The more mature among our readers will remember the 1993 movie starring Bill Murray as the egocentric and sarcastic weatherman Phil Connors, stuck in a time loop and reliving the same day over and over. Market observers are having a similar experience looking at the news coverage of the situation in the Middle East and the blockade of the Strait of Hormuz. Time and again, especially via Trump’s social media posts, we’re led to believe that an agreement with Iran is imminent, and yet the deadlock has been dragging on for weeks.
Oil price surge due to geopolitical tensions
The situation has led to a sharp rise in oil prices, particularly at the end of last week and early this week. Brent crude briefly traded above 110 US$ per barrel, and WTI at over 106 US$. As prices for oil set for delivery in late 2026 and early 2027 continued to rise, bond markets in particular reacted noticeably, with yields on long-term Treasuries and Gilts jumping to their highest levels since 2007, while those on Bunds reached their highest levels since 2011. This is due to the inflationary impact of higher oil prices. On Tuesday, the futures markets were factoring in a Fed rate hike by March 2027, after two to three rate cuts had been expected as recently as early February. The US dollar also benefited from the rise in US yields, appreciating broadly against nearly every other currency.
Gold price under pressure from rising yields
Once again, we saw history repeating itself. Rising yields and a stronger US dollar typically dampen gold prices, since gold does not guarantee a fixed return. Just yesterday, the situation eased somewhat after news agencies reported that three oil tankers had been allowed to pass through the Strait of Hormuz. Nevertheless, gold prices have declined compared to last Wednesday.
Gold price movements over the course of the week
While gold traded around 4,712 US$ per ounce last Wednesday morning, it was heading south toward 4,540 by the end of the week on Friday. After a brief and slight recovery on Tuesday, the week’s low thus far was reached yesterday (Wednesday) at around 4,455 US$ per ounce. After oil prices and yields dropped moderately yesterday, the precious metal climbed to 4,570 overnight and this morning traded at a slightly lower 4,530 US$ per ounce.
Xetra-Gold price down despite weaker euro
The Xetra-Gold price mirrored this decline, somewhat tempered by the euro’s weaker exchange rate against the US dollar, from 129.00 € per gram last Wednesday morning and 129.50 on Thursday to 125.70 by the end of the week on Friday, also hitting its weekly low of 123.75 on Tuesday. Xetra-Gold was expected to open trading this morning at around 125.25 € per gram.
Outlook: De-escalation in the Middle East remains crucial
Reverting back to the Groundhog Day theme, markets continue to focus on the question of whether and when a sustainable de-escalation in the Middle East may be agreed. As Monday marks different holidays in the US, UK, and Germany, we can expect market participants to hedge or close positions ahead of the long weekend.
I wish all readers a sunny and warm Pentecost weekend, and to my like-minded lovers of loud music, two memorable Metallica concerts at the beautiful Frankfurt stadium.