The armed conflict in the Middle East is the dominant topic across financial markets and news outlets. The fighting did not let up over the Easter holidays, and the financial markets’ attention focused further on Tuesday, when Trump’s ultimatum to the Iranian leadership was set to expire at 8 p.m. Washington time.
Ceasefire and possible reopening of the Strait of Hormuz
A two-week ceasefire was agreed just before the ultimatum’s expiry, with Pakistan acting as mediator. The agreement is specifically intended to include the reopening of the Strait of Hormuz, which in turn would enable the export of many raw materials (crude oil, natural gas, fertilizers, helium, etc.). The complete halt of these exports had triggered the financial markets’ high volatility in recent weeks: Rising prices for oil and natural gas led to higher yields, increased expectations of interest rate hikes by central banks, and a stronger US dollar, thus resulting iun strong headwinds for gold prices.
Economic data remains in the background
Economic data, such as the March US labor market figures released on Good Friday, continues to play only a secondary role in terms of price movements on the financial markets.
Market reactions to the ceasefire
Following the announcement of a ceasefire, we saw a sharp reversal compared to the price trends seen on financial markets since the start of the war. Oil prices were down by around 15 percent, stock prices rose, government bond yields declined, the US dollar depreciated, and precious metal prices strengthened. However, reports underscoring the fragility of the ceasefire agreement began to pile up yesterday and dampened investors’ risk appetite.
Gold price trends: high volatility around easter
At least gold is currently trading moderately higher week on week. From 4,605 US$ per ounce last Thursday morning, the precious metal briefly dipped above the 4,800 mark in Asian trading on Good Friday, only to fall back to 4,555 intraday and close the week at 4,675. For a day observed as a bank holiday across many countries, this a remarkable amount of activity. After trading sideways on Monday and Tuesday, prices jumped overnight to 4,855 Wednesday. As concerns about ceasefire stability resurfaced, gold retreated to 4,700, or 4,715 US$ per ounce as of Thursday morning, at the time this report was written.
Xetra-Gold price development
The Xetra-Gold price also strengthened, from just under 128.50 € per gram at the start of trading last Thursday morning to around 130.15 Thursday evening. On Wednesday morning, Xetra-Gold marked its weekly high of 132.60 and earlier today, trading kicked off at around 9:00 a.m. and 130.20 € per gram.
Outlook: focus on energy prices, yields, and inflation
News from the Middle East, as well as developments in oil prices and yields, will likely continue to set the tone on the financial markets. Tomorrow’s US consumer price data will provide an indication of how strongly inflation will be impacted by the higher energy prices.
I wish all readers a relaxing weekend.